CHALLENGE
Our client was a restaurant franchisee with locations throughout New York City. The brand specialized in offering hot food menu items ideal for families and couples looking for a fun atmosphere. This client had a strong local presence and a positive reputation but had exhausted all options in their NYC territory; they wanted to expand and looked north to Westchester County.
There was no open territory in Westchester so the client identified three existing units which were being operated by an existing franchise developer and its affiliated franchisees’ companies. Transactions like this can be complex because three parties are involved from the outset: The buyer, the selling franchisee, and the franchisor. Additionally, the parties would require the consent of the landlords for each location.
The client knew Lusthaus Law had a successful track record in all aspects of franchising, as well as in the purchase and sale of existing franchise and independently operated businesses. They turned to us for guidance and strategy before approaching the unit owners.
SOLUTION
Hiring a New York business lawyer experienced in franchise transactions is key to successful transactions. The lawyer can review existing agreements, standardize the new agreements and liaise between all parties.
In this case, the prospects were willing to sell, but we had to ensure that the franchisor would approve the transaction. We leveraged our deep experience representing franchisors, knowing how to communicate with them in a way that demonstrated how our client’s acquisitions would be mutually beneficial. This included ensuring that the transactions would comply with the franchisor’s system standards. We were also able to address provisions in the franchise agreements for the new locations which were not compatible with our client’s extant franchise agreements.
Furthermore, we applied a similar approach to negotiating the lease transfer documents as well as the client’s new leases for each location to ensure that they addressed both conventional real estate business-related provisions and those specific to the franchise relationship. We also sought to ensure that the leases included the provisions required by the franchisor which would provide the franchisor with necessary opportunities to continue to protect its brand and the goodwill at the locations.
Our deep experience representing franchisees and multi-unit operators uniquely positioned us to negotiate:
- The purchase agreements with the sellers,
- The franchise agreements with the franchisor, and
- Three new leases for the existing locations.
Through our review of the documents and discussions with the client, we ensured they understood the terms of the agreements and the possible impact of the provisions on their business operations.
RESULT
The client purchased the three units and seized the new opportunities to expand in Westchester. With restaurant sales trending upward, the franchisees expanded, maintained their positive reputation in the industry and ultimately strengthened their portfolio.
