Does Benjamin Franklin Plumbing have a right of first refusal regarding the transfer of a franchise?
Benjamin_Franklin_Plumbing Franchise · 2025 FDDAnswer from 2025 FDD Document
| Provision | Section in Franchise Agreement | Summary |
|---|---|---|
| h. "Cause" defined – non-curable defaults | Section 16.1 | Non-curable defaults include: failure to obtain an Approved Location or to open for business by deadline; failure to complete pre-opening training to our satisfaction; unauthorized closing; loss of premises or right to do business; refusing inspection or access to records; operating Competing Business (see q. below); unapproved transfer of ownership or business assets; knowing misuse or disclosure of our confidential information; maintaining false books, underreporting sales, engaging in fraud or embezzlement, or misappropriating employee funds; conviction of felony or certain other crimes; insolvency, receivership, or dissolution of your business entity or loss of business license; if Franchisee or any Owner appears on a list of "blocked" persons under any anti-terrorism or similar law; breach of essential provision; failure to maintain required insurance; failure to attempt to contact a complaining customer or to resolve customer complaint; Key Person, Owners of Franchisee, and/or your employees, as designated by us (collectively, "Designated Representatives") or a Franchisee Qualified Substitute's failure to attend our annual convention for three consecutive years; failure to conduct background checks; repeated defaults even if cured, unauthorized use of the Marks or engaging in conduct we reasonably believe threatens to impair the Marks or our reputation, and not curing within 24 hours after notice from us; violating health, safety, or sanitation law or operating the Franchised Business in a manner that presents a health or safety hazard to your employees, customers or the general public; four or more territory infringement violations even if Territory Infringement Fee is paid. |
| i. Your obligations on termination/non renewal | Sections 16.8 and 17 | We have the option to assume your lease (if any), buy the business assets, and take over your customer contracts. If we do not exercise these options, your obligations include ceasing to operate the Franchised Business, complete de-branding, deactivating or transferring domain name registrations and social media accounts for the Franchised Business, transferring your business telephone number and listings to us, paying all amounts due, returning all of our materials, and complying with confidentiality and non-compete restrictions, among others (also see o. and r. below). If termination was based on your default, you must also pay us liquidated damages (see Item 6). |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION THE FRANCHISE RELATIONSHIP (FDD pages 69–74)
What This Means (2025 FDD)
According to Benjamin Franklin Plumbing's 2025 Franchise Disclosure Document, the franchisor has the option to assume the franchisee's lease (if any), buy the business assets, and take over customer contracts upon termination or non-renewal of the franchise agreement. This is a right afforded to Benjamin Franklin Plumbing, not necessarily a right of first refusal on a transfer, but it does give them control over the assets and customer base of a terminated or non-renewed franchise.
This provision in the franchise agreement means that if a franchisee's agreement ends (either through termination by Benjamin Franklin Plumbing or non-renewal by the franchisee), Benjamin Franklin Plumbing has the option to step in and take over the physical location (if leased), purchase the business's tangible assets (equipment, inventory, etc.), and directly manage the customer relationships. This could prevent a franchisee from selling the business to a third party if Benjamin Franklin Plumbing exercises these options.
For a prospective franchisee, this clause highlights the importance of understanding the conditions under which the franchise can be terminated or not renewed, as it directly impacts their ability to realize any potential value from the business upon exit. If Benjamin Franklin Plumbing chooses to exercise its options, the franchisee may not be able to sell the business to another buyer. Instead, they would be compensated for the business assets, but would lose control over the customer relationships and the potential for a higher sale price on the open market. This is a fairly common practice in franchising, as it allows the franchisor to maintain brand consistency and control over the network.
It is important to note that the FDD excerpt does not specify the exact terms or valuation methods that Benjamin Franklin Plumbing would use when buying the business assets or assuming the lease. A prospective franchisee should seek clarification on these points during their due diligence to fully understand the financial implications of this provision.