CHALLENGE
Our client was a franchisee in New York who owned a franchise location that offered acai bowls and smoothies. The business was popular, profitable and had a reliable local consumer base for in-person dining, takeout and delivery service.
The business was performing so well, in fact, that a local entrepreneur approached our client to purchase the franchise unit for a favorable amount. The chance to sell and turn a profit was very enticing but reality quickly set in, as the client realized she was in unchartered territory: This was the client’s first and only unit, and had never sold a business before.
Since the unit was part of a franchise system, the sale involved at least four parties:
- Buyer
- Seller
- Franchisor
- Building landlord
The client had vetted the buyer’s financial status, and decided she was ready to sell the business. The seller then returned to Lusthaus Law – which had represented her in the initial franchise purchase years prior – to review the terms of the sale and help determine the best time to alert the franchisor.
SOLUTION
The client thankfully had the foresight to speak with us before signing an agreement. Meeting with the franchise lawyer often protects franchisees from giving away information to the prospective buyer and prevents an unwitting and costly breach of contract with their franchisor.
Lusthaus Law provides services to help with the sales process and we have drafted and negotiated countless purchase agreements, which was especially helpful. As with any franchise sale, we encountered many steps, and not all are reflected here. But we can recount some at a high level:
We first reviewed the client’s original franchise agreement to determine the client’s rights to sell the franchise and the process for obtaining the franchisor’s consent. The parties signed the letter of intent, which is not generally binding. Concurrently, we prepared a binding non-disclosure agreement for the buyer to sign to ensure that they would not use the client’s information in a competitive way if the deal did not close.
We thoroughly reviewed the purchase agreement. In the proposed agreement, the buyer offered our client a substantial sum, with more than half the purchase amount up front and the remaining balance to be paid in installments over three more years. We prepared a note for execution by the buyer and its owners to ensure payment of the installments and negotiated other important provisions with the buyer’s attorney. Additionally, we negotiated with the landlord to ensure that the seller would be released from the lease on the assignment to the buyer.
Our deep experience representing franchisees seeking to purchase and sell existing franchises, as well as representing franchisors and reviewing lease agreements, uniquely positioned us to advise the client during the sale.
RESULT
By conferring with our firm before agreeing to any transaction, the client could confidently negotiate. Lusthaus Law is well-versed in representing clients on both sides of a closing. We prepared, took a measured approach and assisted with the successful sale of the client’s business. We also honored the franchisor’s rights, a standard requirement when a transfer is contemplated by the selling franchisee.
Ultimately, the buyer continues to operate the franchise – to the delight of the consumers – and most importantly, our client profited substantially from the sale.
