I'm selling my franchise location (well-known coffee chain). We had a solid offer from a buyer, experienced operator, good financials, but corporate rejected their application out of nowhere. The buyer is now threatening legal action against the franchisor, not me. Has anyone dealt with this? Can a buyer actually sue the franchisor over a rejected application? Feels like a mess and I'm stuck in the middle.
Franchising
Can a buyer sue the franchisor if corporate rejects their application?
Lol they can sue anyone for anything. Winning is a different story.
Usually no. The franchise agreement gives corporate broad discretion to approve or reject transfers. Unless there's a discrimination issue or they violated their own written approval criteria, a lawsuit is a long shot. The buyer probably just needs to look at the contract they'd have to sign.
This. The FDD and franchise agreement almost always say the franchisor can reject any transfer for any reason. The buyer doesn't have a contract with yhe franchisor yet, so what would they sue for?
Did corporate give a reason? That might matter. If they rejected due to something like credit score, the buyer could argue it was arbitrary. But most judges defer to the franchisor.
Sue the franchisor? Good luck. It's in the contract—they own all the cards.
I've seen a buyer threaten to sue once. Franchisor's lawyers sent back a one-page letter citing the section on transfer approval. That was the end of that.
Wait, usernames like 'FranchiseGuru' are usually suspect. But I'll chime in—I consult in this space. The buyer typically has no standing because they're not a party to the franchise agreement. The only exception would be if the franchisor's rejection violated a specific state franchise law (like a duty of good faith that some states imply) or if there's evidence of discriminatory animus. But proving that is hard. Your buyer likely Signed a release or acknowledgment during the application process.
Also, is the buyer threatening to sue you too? Or just corporate?
They're only threatening corporate. I’ve got no contract with them yet. But my sale is now dead in the water.
That's frustrating. But from corporate's side, they'd rather lose a sale than approve someone they don't want. Your buyer's legal threat is probably just bluster to pressure corporate into reconsidering.
Or they're just mad and want someone to blame. Sue the franchisor? They'd need deep pockets.
Curious—did corporate say anything about why they rejected? Sometimes it's a background check thing, or they have a competing buyer they prefer.
Maybe they rejected because the buyer's last name is 'Trump'? Kidding. But seriously, if the reason is bogus, a lawyer might still tell the buyer they have a case to get a settlement. Franchisors hate litigation.
I went through something like this when selling my sandwich shop. Corporate rejected a buyer and the buyer sued. The case was dismissed in like three months. The judge said the franchisor had no duty to approve. Cost the buyer $15k in legal fees.
Thanks. So basically the buyer has no real case. I'll tell them to direct all frther communication to corporate and move on. Just annoying to lose the deal.
Pretty much. Good luck finding another buyer. Just make sure the next one gets pre-approved by corporate before you waste time.