Does Burros Fries's right of first refusal apply to a transfer of an ownership interest in the franchisee?
Burros_Fries Franchise · 2024 FDDAnswer from 2024 FDD Document
f First Refusal
Franchisee acknowledges that we have an unrestricted right to sell, transfer or assign its rights or obligations under this Agreement to any transferee or legal successor of ours.
We have a right of first refusal regarding any proposed sale, assignment or transfer by Franchisee subject to this Agreement. During the term of this Agreement, if Franchisee, any of its Owners wish to sell, assign or otherwise transfer an interest in this Agreement, the Franchised Business and/or its assets, or an ownership interest in Franchisee (collectively, the "Interest"), then Franchisee will comply with the requirements of Sections 22.B, 22.C and 22.E of this Agreement.
Franchisee will notify us within ten (10) days after Franchisee has commenced discussions or communications even if preliminary, regarding such a proposed sale, assignment or transfer and then send us written updates of the status of such discussions or communications every thirty (30) days thereafter unless and until such discussions or communications have ceased, in which case Franchisee must notify us in writing within five (5) business days that such discussions or communications have ceased. Whether the discussions have ceased or not, at our option, we may require Franchisee to send us, by certified mail or other receipted delivery, copies of any materials or information sent to the proposed buyer or transferee regarding the possible transaction as well as any materials Franchisee sends to the buyer or transferee. Before agreeing to any such transaction, Franchisee and its Owners agree to obtain from a responsible and fully disclosed buyer, and then send us, a true and complete copy of a bona fide, executed written offer (which may include a letter of intent) relating to any proposed transfer. The offer must include details of the payment terms of the proposed sale and the sources and terms of any financing for the proposed purchase price. The bona fide offer with the proposed purchase price must be in a dollar amount, and the proposed buyer must submit with its offer a five thousand dollar ($5,000) earnest money deposit (if a proposed disposition is part of a transaction involving additional Franchised Businesses, operating under other Franchise Agreements or license agreements with us, the proposed buyer must pay Franchisee this earnest money deposit for each Franchise involved).
To enable us to determine whether we will exercise its option, Franchisee or its Owners, shall provide such information and documentation, including financial statements, as we may require (as noted below). In the event that we elect to purchase said Interest, closing on such purchase must occur within ninety (90) days from the date of notice to the Franchisee of the election to purchase said Interest by us.
Source: Item 22 — CONTRACTS (FDD page 53)
What This Means (2024 FDD)
According to Burros Fries's 2024 Franchise Disclosure Document, Burros Fries has a right of first refusal regarding any proposed sale, assignment, or transfer of an ownership interest in the franchisee. This right applies if a franchisee or any of its owners wish to sell, assign, or transfer an interest in the Franchise Agreement, the franchised business and/or its assets, or an ownership interest in the franchisee.
In practical terms, if a Burros Fries franchisee decides to sell their business or transfer ownership, they must first offer Burros Fries the opportunity to purchase the business on the same terms as a bona fide offer from a third party. The franchisee must notify Burros Fries within ten days of commencing discussions about a potential sale and provide written updates every thirty days until the discussions cease. Burros Fries can request copies of any materials sent to the proposed buyer.
Before agreeing to any transaction, the franchisee must obtain a written offer from a responsible buyer and provide Burros Fries with a copy, including payment terms and financing details. The offer must include a dollar amount for the purchase price, and the buyer must submit a $5,000 earnest money deposit. This deposit is required for each franchise involved if the transaction includes multiple Burros Fries businesses. Burros Fries also retains the right to reject any proposed purchase if it believes the buyer has taken on too much debt.