Legal Question in Business Law in California

It is usually a good idea to have an attorney review the documents before depositing any money. You want to protect yourself and make sure that the deposit is refundable if the deal doesn't go through.

Making a deposit directly into the hands of the seller would be too risky for me; I advise that you put the deposit in escrow with a licensed escrow holder and ask that the holder put it into an interest-bearing account.

As a Franchise Attorney who has handled franchise resales, like the one you are contemplating, I agree with the other attorney answers. Also, you need to realize a couple other things. First, virtually all franchisors retain a right of first refusal. They require the seller to furnish them with a copy of your exact offer, which they can match, or not, within a certain timeframe. These educational franchises are not ones that buyers, like you, are beating down the doors of sellers to acquire. Be cautious and don't fall for high-pressure tactics, like a 15% "security deposit." What if you change your mind, after doing further legal due diligence, like investigating assignment of the franchise agreement? Is this addressed in the LOI? I bet not. Second, realize you will need to step into the existing franchise agreement, which may or may not have acceptable terms. Be certain everything is reviewed by an attorney before making a commitment. Consult with a good franchise attorney for specific advice.

Mr. Franchise - Kevin B. Murphy, B.S., M.B.A., J.D.

Franchise Foundations, a Professional Corporation