Regarding a proposed Azal Coffee franchise transfer, what is prohibited concerning the burdens placed on the proposed transferee?
Azal_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
You acknowledge that the conditions listed above are necessary for protection of the Franchise Marks and Franchise Systems and do not impose unreasonable restrictions on a Transfer.
14.4 Transfer on Death or Incapacity.
- (i) You or the proposed transferee must take any action specified by us to make the Franchise Business comply with current appearance, Franchise Trade Dress, equipment, and signage requirements. We may require this action to be taken before the Transfer or within a specified period of time after the Transfer.
- (j) The proposed transferee and its owners, shareholders, officers, directors, partners, members, investors, employees and agents, and their Family Members and affiliates of the proposed transferee must not be an owner, shareholder, officer, director, partner, member, investor, employee, agent or consultant of or to a business that competes with Azal Coffee. On our request, the transferee may be required to sign an acknowledgement of compliance with this prohibition.
- (k) If the transfer involves installment payments by the transferee to the Seller, the Seller must sign a subordination agreement under which the Seller subordinates its right to receive any installment from the transferee to our right to receive all amounts due to us through the due date of the installment. The subordination agreement must be in a format and contain terms and conditions specified by us.
- (I) Your landlord must allow the lease for the Franchise Location to be transferred to the transferee.
- (m) You, the Seller, and the proposed transferee must comply with any other standard procedures specified by us.
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, the conditions for franchise transfers are deemed necessary for the protection of the Franchise Marks and Franchise Systems, and the agreement states that these conditions do not impose unreasonable restrictions on a transfer.
Specifically, Azal Coffee can require the proposed transferee to take actions to ensure the Franchise Business complies with current standards for appearance, trade dress, equipment, and signage. This may need to be completed before the transfer or within a specified time afterward. Additionally, the proposed transferee and related parties must not be involved with any business that competes with Azal Coffee. The transferee may be required to sign an acknowledgement of compliance with this non-compete provision.
Furthermore, if the transfer involves installment payments from the transferee to the seller, the seller must sign a subordination agreement. This agreement ensures that Azal Coffee's right to receive any amounts due to them takes precedence over the seller's right to receive installment payments from the transferee, up to the due date of each installment. The landlord must also allow the lease for the franchise location to be transferred to the transferee. Finally, all parties involved—the seller, the proposed transferee, and Azal Coffee—must comply with any other standard procedures specified by Azal Coffee.