What is the consequence if an Annex Brands franchisee transfers control of the operation of the Center?
Annex_Brands Franchise · 2025 FDDAnswer from 2025 FDD Document
A transfer has the effect of superseding the previous franchise agreement, when a new franchise agreement is entered into with the transferee.
A consequence of entering into a new franchise agreement is that a new Protected Area described in Attachment 3 will be granted to the transferee and this new Protected Area may be smaller in size than the original Protected Area.
Franchisee should not represent to transferee that transferee will be granted the original Protected Area.
There may be other changes, such as changed fee, payment, operational and reporting requirements.
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- Franchisee must pay all royalty fees, marketing fees, national convention participation deposits, technology services fees, insurance premiums, or other fees under this Agreement and all other agreements between Franchisee and Franchisor or any of its affiliates, expenses, equipment lease or rental payments and/or supplies payments, purchases from Franchisor and its affiliates, interest, late fees, or any other indebtedness to Franchisor or its affiliates. which are then due and unpaid.
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- To the extent such consent is required by the terms of the lease, the lessor of the Center must have consented to the assignment or sublease of the Center to the transferee.
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- Except as provided in this Agreement, in lieu of an initial fee, Franchisee or the transferee must pay Franchisor a transfer fee of 15% of the then-current non-discounted initial franchise fee for a standard Center.
If Franchisee or transferee qualifies for the International Franchise Association's VetFran Program, a 25% discount will be applied to the transfer fee.
In no event will more than one VetFran discount be applied to the transfer fee.
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- Except to the extent prohibited or restricted by applicable law, Franchisee and its owners must execute general releases, in forms satisfactory to Franchisor, of any and all claims against Franchisor and its affiliates and their respective officers, directors, employees, and agents.
No sale, assignment, transfer, conveyance, encumbrance or gift of any interest in the Franchise or this Agreement will release Franchisee or any other party to the transfer from the obligations or covenants in this Agreement, unless there is a specific written release by Franchisor.
Source: Item 22 — Contracts (FDD pages 109–110)
What This Means (2025 FDD)
According to Annex Brands' 2025 Franchise Disclosure Document, a transfer of the franchise agreement results in the creation of a new franchise agreement with the transferee. A key consequence of this new agreement is that the transferee will be granted a new Protected Area, which may be smaller than the original Protected Area granted to the initial franchisee. The franchisee is explicitly instructed not to represent to the transferee that they will receive the original, larger Protected Area. This means the new owner might have a smaller exclusive territory, potentially impacting their business volume.
In addition to the protected area adjustment, the transfer may also bring about other changes to the franchise agreement. These could include altered fee structures, different payment schedules, revised operational requirements, and new reporting obligations. This implies that the financial and operational terms for the new franchisee could be different from those of the original franchisee. Therefore, both the franchisee and the transferee need to carefully review the new franchise agreement to understand these potential changes.
To complete the transfer, the franchisee must fulfill several obligations. They must pay all outstanding royalty fees, marketing fees, national convention participation deposits, technology services fees, insurance premiums, and any other debts owed to Annex Brands or its affiliates. Furthermore, if required by the lease terms, the lessor of the Center must consent to the assignment or sublease to the transferee. The franchisee or transferee is also required to pay a transfer fee equal to 15% of the then-current non-discounted initial franchise fee for a standard Center. However, a 25% discount on the transfer fee is available if the franchisee or transferee qualifies for the International Franchise Association's VetFran Program, with only one VetFran discount applicable. Finally, both the franchisee and their owners must execute general releases of claims against Annex Brands and its affiliates, unless prohibited by law. It is important to note that the original franchisee remains obligated under the original agreement unless specifically released in writing by Annex Brands.