Franchises Attorney in Minneapolis, Minnesota

Franchisor Methods to Restrict Value

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What are some of the methods that a franchisor might use to restrict franchisees from getting fair value for the sale of their business? One of the principle issues that we deal with at Dady and Gardner is helping franchisees develop and implement a succession plan that maybe they want to sell to their children, and they’re bringing them up in the business. Automobile dealers, for example, have a school that they send their sons and daughters to, to have them work at other dealerships and learn every aspect of operating a car dealership. It’s been very, very successful.

So they might be bringing them up in the business and those folks want to sell to their son or daughter, they don’t want to sell back to General Motors. The same thing is true with franchises. Burger King would be a good example. They have family. Maybe they have a manager they want to sell to the person that they want to sell to for the price they want. A principle obstacle in doing that is we see too often from our respective, and that’s the right of first refusal, where franchisors in their franchise agreement say if you ever want to transfer, all or some of them say all or any portion of your business, you have to first offer the terms you’re proposing to sell it someone else to, to us, and we have 30 day to decide if we want pay you that.

And if we do, too bad for your son or daughter. They might have to go to law school, or something they’d rather not do instead. So the most extreme example of this is recently Burger King sold a bunch of company stores to a franchisee and assigned their rights of first refusal to that buying Burger King franchisee in 20 states. Well, what does that do to the value of those Burger King in 20 states? If my son and I are looking to get into the quick service business, we’re not gonna be negotiating with Burger King franchisees in one of those 20 states because we know if we negotiate a good deal, this franchisee that Burger King assign the right of first refusal to is gonna take it away from us. So we’re gonna go negotiate some place else. The effect of that is to drive down the value of the existing franchisee’s business, which is bad.

And, secondly, families like to keep their business in the family, so they can’t do it with the rights of first refusal. So that’s an obstacle that we like to address upfront by taking it out of the document before it’s signed, but secondly, we ask franchisors to waive that right in situations where we want to sell to a beloved manager or to a son or daughter, and sometimes they will.

Minneapolis franchisee lawyer Michael Dady explains ways that a franchisor might attempt to stop a franchisee from getting full value when selling their business.

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