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In BASCO, Inc. v. Buth-Na-Bodhaige, Inc. d/b/a The Body Shop – The Body Shop, Inc.,6, the District Court rendered a summary judgment to a franchisor that the applicant`s alleged franchisee had violated the Minnesota Franchise Act by refusing to agree to transfer inappropriately. The applicant, a Body Shop franchisee, attempted to transfer one of its franchises to a potential buyer. When the applicant submitted the sales contract to the franchisor for approval, the franchisor only interviewed the buyer and his spouse to find that they had insufficient financing and retail experience, that they did not intend to work full-time in the business and that they did not complete the required training. The franchisor gave potential buyers the opportunity to remedy these defects, but when they did not, the franchisor withheld its consent to the transfer. In order to minimize legal action, the proposed purchaser should be required to make a formal application. The application approval standard should also be as objective as possible. The evaluation criteria include: compliance with minimum financial criteria, good credit ratings, relevant experience and solidness, as well as, possibly, third-party valuations or tests. The absence of a formal transfer request with the franchisor is a valid reason for the franchisor to disapprove of the transfer and the courts maintain franchise agreements requiring the proposed purchaser to meet the franchisor`s criteria for a new franchisee15.15 The interview process should be formalized to include reports on each interview and possibly a note or point. With very few exceptions, created by law, only the existing franchisee, not the proposed franchisee, has the opportunity to challenge a transfer refusal.16 In most franchisee award situations, there are two things a franchisee must do before it can transfer its rights to a third party: the franchisor may require that its strategic suppliers or leasers be paid as a condition of the transfer.

Such a provision is applicable as a contractual provision. However, in a bankruptcy environment, this provision was not considered essential to the franchise relationship. Bankruptcy courts are considering whether this provision can be separated from other essential elements of the franchise. The results are generally sensitive to the facts. McKenna has launched arbitration proceedings against executive shareholders, claiming it has the right to buy the stock under the shareholder contract. Following several decisions by the arbitrator and a confirmation of the Decision of the Pennsylvania Court of Common Pleas, the final order established that McKenna should have been offered the shares to the executive shareholders and that some benefit was granted, requiring PPR to ask Prudential Real Estate Affiliates to authorize the transfer of shares to McKenna. The California federal court then issued a restraining order prohibiting McKenna, executive shareholders and PPR from transferring the shares, on the grounds that prudential Enreal Estate affiliates would have a right of first refusal under the franchise agreement regarding the share transfer proposal and would therefore be likely to succeed on the merits. On appeal of that decision, the Ninth District found that California courts have always held that the statutes of companies that granted the rights of first refusal to other shareholders or the company were generally enforceable. The franchise rule requires that a potential franchisee be provided with a franchise publication document (FDD) that details 23 „items“ for the franchisor`s business. An FDD aims to give potential franchisees a clear picture of the activities of the franchisor, its executives and other franchises.