Almost all registration countries provide for registration and disclosure exemptions for transfers between two franchisees on their own account without the participation of the franchisor. However, disclosure laws often require a franchisor`s FDD to include certain elements in the event of a franchisee`s transfer. Some franchise agreements contain a provision that expressly requires that the transfer price not be excessive. This provision has often been criticized as an unjustified interference by the franchisor in arm`s length negotiations of the existing franchisee and its potential franchisee. In cases where an analysis of the transaction shows that the acquirer has borrowed too much money based on the existing sales volume to break even, the franchisor cannot be accused of rejecting the purchase due to insufficient capitalization. In Cunningham Implement Co., v. The plaintiff alleged that McDonald`s arbitrarily breached the franchise agreement by refusing to include potential buyers in the program. The court rejected the plaintiff`s arguments and gave McDonald`s a summary judgment based on the clear and unambiguous language of the mcDonald`s franchise agreement and its offer circular. Both documents specifically stated that satisfactory completion of the training program was a prerequisite for consent to transfer. After entering into a purchase agreement for the franchise, the Chus passed a test as part of the normal application process to become franchisees. As a woman. Chu failed the test, the Chus filed a lawsuit, claiming that the franchisor had unlawfully interfered with its purchase agreement, that it was a third-party beneficiary of a previous settlement agreement between the franchisor and the former franchisees, and that the franchisors had violated the New York Franchise Sales Act.4 The court dismissed these claims, including the exception of unauthorized interference because “the only allegation of unauthorized interference Interference The defendant`s refusal is to authorize the purchase of a plaintiff.4 The court dismissed these claims, including the exception of unauthorized interference, because “the only alleged interference is the defendant`s refusal to authorize the purchase of a plaintiff.

The application and this eventuality are expressly provided for in the purchase contract. The exercise of Dunkin`s contractual right to approve proposed assignees is not an “interference” of the kind for which relief may be granted. 5 Even if the franchise agreement requires the franchisor not to act unreasonably by refusing consent to the transfer (or if it stipulates that the proposed franchisee must comply with the franchisor`s then-current licensing standards), the question remains what specific reasons the franchisor may give for refusing consent. If the franchise agreement does not contain specific conditions for the transfer, the courts will formulate standards of relevance in the event of a refusal to transfer. Franchisors should exercise their right of first refusal judiciously. Franchisees of the existing system often wait patiently for existing business units to be put up for sale. If the franchisor exercises a right of first refusal, this exercise will result in the disappointment of a legitimate buyer. For this reason, a right of first refusal should be exercised sparingly, as it denies the interests of other franchisees in the system to expand their own network.

However, other courts favour the franchisee`s right to sell his business. In Larese v. Creamland Dairies, Inc., the Tenth Circuit reversed the District Court`s decision, which wrongly found that a franchisor had the right to unreasonably withhold consent under Colorado law.43 The District Court noted that, although it had not yet considered whether a franchisor was required to act reasonably by denying consent, Colorado courts have imposed an adequacy standard for consent to the transfer of clauses in other contracts. It also cited cases from other jurisdictions where it was determined that a franchisor had to be reasonable in terminating a franchise. The court ultimately ruled that the franchisor`s rights had to be weighed against the rights of the franchisees and ruled that this would “not be an excessive violation of the franchisor`s right to require the franchisor to act reasonably if the franchisee has decided that it wants to withdraw from the relationship.” 44 This chapter examines the limits of treaties, judicial decisions and legislative initiatives. Restrictions contractually imposed on the franchisee do not constitute a “zero-sum game” in favour of the franchisee. On the contrary, a balance is often found when the franchisor and the franchisee benefit from contractual conditions that allow for the resale, financing and expansion of valuable franchises. To date, no uniform contractual language has been developed that is acceptable to franchisors and franchisees. Judicial decisions and legislative decrees have also not established uniform expectations that apply to restitutions in all situations. However, the analysis is different in cases where the acquirer has no debt service and acquires the deductible against payment in cash, albeit at an unreasonable price.

In these circumstances, the courts allowed the franchisor to refuse the proposed transfer on the basis of an inflated price. In Kestenbaum v. Falstaff25, the court concluded that the franchisor`s strong interest in the vitality of the new franchise, its image and its relative position in the market support the rejection of the transfer. In Walner v. Baskin-Robbins Ice Cream Co.,26, the court held that the franchisor`s reason was not relevant to the rejection, since the contract expressly permitted the refusal of a transfer and such a refusal was not contrary to federal antitrust laws. Contractual restrictions on transfer, exploitation and renewal franchise rights are based on the franchisor`s need to protect brand value. While these restrictions are generally a contractual issue, court decisions and legislative initiatives have sought to strike an objective balance between franchisor and franchisee agreements. Some states also require the franchisor to provide information to the proposed acquirer prior to the transfer.

For example, Michigan requires the franchisee to grant the prospective acquirer access to the company`s books and records at least one week before signing an agreement or receiving consideration, whichever comes first. In New York, the franchisee may provide the acquirer with a copy of the franchisor`s currently registered prospectus at least one week before entering into a contract or receiving consideration, whichever comes first. For example, in Franchise Management Unlimited Inc.c. America`s Favorite Chicken,20 the Court found that a franchisor`s requirement that potential acquirers be exempted before approving a transfer was not economically unreasonable […].