FRANCHISEADVICE
In permitting a beneficiary to inherit
from a deceased franchisee, however, the franchisor has to be careful to ensure that such a beneficiary meets the criteria for new franchisees generally. It would not do for someone to be able to inherit a franchise business automatically if they were not then able to operate it to the required standards. Franchisors therefore require, as a pre- condition to granting their consent, that any such beneficiary undergoes the franchisor’s training course and approval process. In these circumstances, it would not be right for a franchisor to have any rights of first refusal or option to purchase the franchisee’s business unless the executors of the franchisee wish to sell his or her business as a going concern. What if the deceased franchisee has no beneficiary who wants to or is capable of being a franchisee? In such circumstances,
the only ethical solution would be for the franchisor to allow the personal representatives of the deceased franchisee to sell the franchise business as a going concern but subject to the usual terms and conditions that the franchise agreement will provide for in the case of a sale of a business as a going concern. If that were to happen, it would be perfectly ethical for a franchisor to exercise any rights of first refusal or option to purchase but, as stated above, only after a beneficiary has been given an opportunity to inherit. Finally, there is always a possibility that, following the death of a franchisee, there is no suitable beneficiary and the personal representatives can’t sell the business. If that happens, then it seems that the only course of action open to the franchisor is to terminate the franchise agreement and appoint a new franchisee for the area/location. Most ethical
franchisors will, however, endeavour to persuade such a new franchisee to take over the business of the deceased franchisee as a going concern and pay something, as close as possible to the market value of the business, to the deceased franchisee’s beneficiary. It is my experience that the parties seldom pull in different directions in such a scenario. The principal objective of all concerned is to keep the business alive and to ensure that any beneficiaries benefit thereby to the maximum extent possible. n
MANZOOR ISHANI
Manzoor Ishani is a senior solicitor with Sherrards, a commercial practice advising franchisors and franchisees in the UK and internationally
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