Refranchising; What is required?

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Famous Dave’s has sold its Chicago location to an existing Franchisee that currently operates in Michigan and Ohio. The transaction is going for over 1 million. The selling of an existing corporate franchisor’s operating location to a franchisee adds a layer of complexity to the franchise sales process. The buyer is also a prospective franchisee and requires the same disclosures, agreements, and holding periods as a prospective franchisee of a new outlet.

 

There may, however, be items in the franchise agreement that require modification via an addendum to the franchise agreement, such as purchase of inventory, site selection, and time for opening.

 

Layered on the franchise sales process is a purchase agreement. Yes. The acquisition of a current operating business should be addressed in a purchase agreement. The purchase agreement and sales transaction should be akin to any other purchase or sale of a business, which includes due diligence, liabilities for prior acts, employee termination and rehiring, lease assignment or subleasing, etc.

 

The transaction for the sale of the business should not be lumped into the franchise agreement or an addendum. It should be its own stand-alone agreement.

 

The purchase agreement should be delivered with the franchise documents and run with a holding period for the franchise agreement and other agreements.

 

A management agreement may be required to allow uninterrupted operating of the location during securing of the government licensures and permits.

 

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