I run a small retail franchise (don't want to name the brand but it's in the frozen dessert space). My 10-year term is up in 8 months. Corporate sent me a 'renewal packet' that includes a clause saying I must offer to sell the store back to them at 'fair market value' before I can sell to anyone else. Is this legal? Has anyone dealt with this? Feels like a hostage situation.
Franchise Exit
Can corporate force you to sell your store back to them when your term ends?
Depends on your state and what you signed 10 years ago. Franchise agreements are contracts, and if you agreed to a right of first refusal back then, you're probably stuck. Did you have a lawyer review the original original FDD?
Not a lawyer but I've seen this in the auto industry. They call it a 'right of first refusal' or sometimes a 'buyback clause.' It's common. The 'fair market value' part is where they'll screw you—they'll bring in their own appraiser.
lol welcome to franchising. You don't own the store, you own the right to operate it until they decide you don't.
I did have a laWyer look at it originally, but honestly I was 26 and just wanted to open. I don't remember a buyback clause. I'm digging out the original agreement tonight. The renewal packet makes it sound like a new requirement.
If it's in thhe renewal packet and not the original, that's a material change. You might be able to walk away and just let the term expire. But then you lose the resale value of the business. Careful.
Also check if the franchise agreement has a 'covenant not to compete' that survives termination. If you don't sell back to them, they might block you from opening anything similar nearby for 2 years.
What's the brand? If it's the one I think it is, their parent company has been buying back stores aggressively to conver them to corporate-owned. They lowball everyone.
I'd rather not say the name but it rhymes with 'Sonic.' Wait, no, that's too obvious. Let's kust say it involves a lot of soft serve.
if it's soft serve and they're forcing buybacks, you're about to get a masterclass in why people hate franchise overlords. Get a franchise attorney, not just a general business lawyer. Worth the $500/hr.
One more thing: 'fiar market value' usually means they deduct for 'deferred maintenance' and 'brand standards updates' they claim you need. I've seen offers come in at 30% below what the store actually sells for on the open market.
Can you just renew and then sell later? Or does the buyback clause apply at every renewal?
The renewal packet says the buyback option applies 'at the end of each term, including renewals.' So yeah, they've got me every 10 years. I'm calling a lawyer tomorrow.
Good luck. And don't sign anything until your lawyer reads it. They love to slip in an arbitration clause with a 30-day deadline.