When Can the Franchisor Withhold Approval?

Franchisee enters into a Purchase Agreement for the sale of 5 franchises.  Under the Purchase Agreement, the Purchase Price is $880,000.00 for each franchise or a total Purchase Price of $4,400,000.

The franchisor refuses approval for the sale of the franchises.  A over 4 million dollar sale on the line and the franchisor refuses to give approval for the transfer. Franchisor says it would only approve the sales transaction if the purchase price is reduced to $550,000, the estimated the value of the equipment of the five franchises.  How do you reconcile this?  The Franchisor will consent to the sale if the Purchase Price is reduced to 1/5 of what the franchisee seller and buyer agreed upon in the Purchase Agreement.

Can the franchisor do that?  Franchisee asserts not. The franchisor did not even evaluate the potential buyer to see if the buyer qualifies.  A look at the Purchase Price, approve withheld.  Franchisee files a complaint for more than a half dozen claims.  The case is Picktown Foods, LLC, et al. v. Tim Hortons USA, Inc.  In a claim by claim analysis, the Court dismissed claims in turn for lack of pleading or factual deficiencies.  But the Court upholds franchisee’s claim for Tortious Interference with Contract.

The franchisor is artificially freezing the Franchise Purchase Prices to ensure any new franchisee will have more resources to invest in the brand, building, and real estate owned by franchisor.

The premise of the franchisee claim is that the franchisor failed to act upon an obligation to proceed in good faith.  The franchisee alleges the franchisor is artificially freezing the Franchise Purchase Prices to ensure any new franchisee will have more resources to invest in the brand, building, and real estate owned by franchisor.

The Court rules there is sufficient evidence for the franchisee’s claims to be heard in court.

The Court rules there is sufficient evidence for the franchisee’s claims to be heard in court.  The conditions for franchisor approval of transfer as stated in the franchisee agreement did not state that the Purchase Price had to be equal to the franchise equipment value.  Item 17 of the franchise disclosure document did not state the Purchase Price must be equal to the franchise equipment value.  The franchisor did not evaluate the buyer qualifications.

Was the franchisor’s denial of the transfer in bad faith?  Was it Tortious Interference with Contract?  The case proceeds to trial for  determination.

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