Challenge
Our client owned a franchise that provided tutoring for select sports for youths. These programs offered fun experiences for kids and a convenient, affordable option for parents.
The franchisee was able to customize instruction on the fundamentals of select sports with or without large venues or fields.
This was not a traditional brick-and-mortar operation. Aside from sports equipment, the true value of the business was the territory and, ultimately, the relationships with practice areas like public parks and gymnasiums, which the franchisee developed.
The sale appeared straightforward. However, last-minute revisions to the purchase agreement raised concerns and led the seller to consult Lusthaus Law to protect their rights, financial interests, and post-sale obligations.
Solution
The seller had been in the profession for years and was accustomed to handling transactions informally, often relying on good will. As a result, he had not carefully reviewed the purchase agreement, which was drafted by the buyer’s lawyer to serve the buyer’s interests.
The agreement called for half of the purchase price up front, with the remaining half held in escrow for a period of time. While this practice can be standard in business sales to verify the accuracy of information shared during due diligence, in this case it created unnecessary risks. Even if the buyer’s intent was not bad faith, the provisions could have quickly placed the seller in a vulnerable position.
Lusthaus Law intervened to revise the agreement and safeguard the seller’s financial interests. The escrow requirement was removed. The contract also included a clause requiring the seller to provide post-sale transition support for an extensive period of time. We set firm time boundaries so that the buyer could not overburden the seller’s goodwill. This also worked to the advantage of the franchisor, which typically prefers to train and onboard new franchisees directly.
Result
Had the client signed the original agreement, he might have forfeited significant funds and remained tied to a business in which he no longer had an ownership stake. With Lusthaus Law’s guidance, the contract was restructured to be fair and mutually beneficial.
This case demonstrates why New York franchise owners should engage a franchise lawyer early in the process. A long and successful career in the franchise system can make sellers overly confident, but even experienced operators can overlook important details. A NY franchise lawyer involved from the outset ensures that rights are protected, that costly mistakes are avoided, and that no money is left on the table.
At Lusthaus Law, these protections and strategies form the foundation of an effective exit plan—one we were proud to deliver for our client.
