Legal Question in Business Law in California
I am taking over a franchise. There are a lot of other legalities involved, but the previous owner is asking for a good faith deposit of 10% up front as I finish my training. The franchisor has not only pre-approved me and I do not have the final approval. The franchisor also stipulates that a deposit is not required by them, but that if money does exchange hands, it must be fully refundable. I just want to know your opinion on the matter
3 Answers from Attorneys
It should be refundable.
The best way to assure refundability is to use an escrow for all deal-related items including deposits of money.
As a Franchise Attorney who has handled numerous franchise resales, I can say this. It seems you're already in the pipeline. What if you don't get the franchisor's final approval? Tell the current owner everything has to wait until you get this final approval. As you say, there are a lot of other legalities involved. Make sure you get good legal advice before consummating the deal. Consult with a franchise attorney for specific advice.
Mr. Franchise - Kevin B. Murphy, B.S., M.B.A., J.D.
Franchise Foundations, a Professional Corporation
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