Given the strength of today’s real estate market, we are seeing a significant increase in the number of investors buying and selling real estate in Arizona, especially those associated with the franchise model. The real estate brokerage industry is estimated to be $ 155 billion and growing. From Keller Williams to Help-U-Sell, investors want to “enter” real estate, including buying their own brokerage franchises to own, operate and operate. Before signing up for the dotted line, it is important for buyers to know that they are actually entering into two deals: (1) buying an existing business from the current owner; and (2) buying the franchise rights from the franchisor. Franchisees are often surprised to learn about the following legal issues that can arise with these types of transactions:
one. Commitment to re-image and brand. The buyer must understand whether the seller is following the franchisor’s brand guidelines and requirements. If the business being sold does not meet the current brand or image requirements of the franchisor, the franchisor will often require the buyer to “re-design” the business in accordance with current brand standards. The purchaser must understand what is required and determine which party will bear the cost of rethinking or matching the brand.
2. Transfer and approval process. In most cases, the underlying franchise agreement expressly prohibits the sale of the franchise without the prior written permission of the franchisor. Because of this limitation, the buyer and seller must notify the franchisor of a potential sale as soon as possible. The buyer will want the franchisor to approve the proposed transaction and will want to know if there are any conditions attached to the approval. In most franchise contracts, the parties must follow the franchise sale procedure.
3. Fees. Most franchise agreements require payment to the franchisor for the transfer to take place. The buyer and seller must agree on which party will pay the transfer fee.
four. Franchise agreement… Most franchisors require buyers to comply with the then current form of franchise agreement, as opposed to the buyer being able to simply accept the existing franchise agreement. The buyer will need to review both agreements and understand the differences between them. Often the buyer will not have much leverage over the negotiation of the franchise agreement, but the buyer must understand the terms of the existing franchise agreement and be aware of the new terms that the buyer must now agree to.
five. Lease and term of the franchise. Often, the remaining term of a franchise agreement and the remaining term of an existing lease are incompatible. For example, if the franchise is for 10 years and the current lease is only 3 years away, the buyer will need to renew the lease to meet the franchise term.
Real estate franchises are everywhere and are a very popular way to enter the industry. As with other franchises, the franchisor grants a license to the franchisee to use their name in exchange for a fee. This “fee”, among other fees, is usually a percentage of the closing of the franchisee’s real estate. If you are buying an existing real estate franchise, you should consider the non-exclusive list of items above.
If you have any further questions about real estate, franchises or commercial law, do not hesitate to write to me at email@example.com… Looking forward to your response!
Patrick R. McQueen – founder McQueen and Gottlieb, PLC…