Under what condition is a transfer of interest in the Baya Bar franchise agreement allowed for the Franchisee or Principals?
Baya_Bar Franchise · 2024 FDDAnswer from 2024 FDD Document
16.1.3 If Franchisor assigns its rights in this Agreement, nothing herein shall be deemed to require Franchisor to remain in the food and beverage business or to offer or sell any products or services to Franchisee.
- 16.2 Restrictions on Transfers by Franchisee. Franchisee's rights and duties under this Agreement are personal to Franchisee as it is organized and with the Principals of the business as they exist on the date of execution of this Agreement, and Franchisor has made this Agreement with Franchisee in reliance on Franchisor's perceptions of the individual and collective character, skill, aptitude, attitude, business ability, and financial capacity of Franchisee. Thus, no transfer, as hereafter defined, may be made without Franchisor's prior written approval. Franchisor may void any transfer made without such approval.
- 16.3 Transfers by Franchisee. Franchisee shall not directly or indirectly sell, assign, transfer, give, devise, convey or encumber this Agreement or any right or interest herein or hereunder (a "Transfer"), the Franchise, the Franchised Business or any assets thereof (except in the ordinary course of business) or suffer or permit any such assignment, transfer, or encumbrance to occur by operation of law unless it first obtains the written consent of Franchisor. A transfer of any stock in the Franchisee if it is a corporation or a transfer of any ownership rights in Franchisee if it is a partnership, a limited liability company or limited partnership shall be considered a Transfer restricted hereunder. If Franchisee has complied fully with this Agreement and subject to Franchisor's Right of First Refusal set forth in Section 16.6, Franchisor will not unreasonably withhold its consent of a Transfer that meets the following requirements:
- 16.3.1 The proposed transferee and all its principals must have the demeanor and be individuals of good character and otherwise meet Franchisor's thenapplicable standards for franchisees.
- 16.3.2 The transferee must have sufficient business experience, aptitude and financial resources to operate the Franchised Business and to comply with this Agreement;
- 16.3.3 The transferee has agreed to complete Franchisor's Initial Management Training Program to Franchisor's satisfaction;
- 16.3.4 Franchisee has paid all amounts owed to Franchisor and third-party creditors;
- 16.3.5 The transferee has executed Franchisor's then-standard form of Franchise Agreement, which may have terms and conditions different from this Agreement, except that the transferee shall not be required to pay the Initial Franchise Fee;
- 16.3.6 Franchisee and the transferee and each of Franchisee's and the transferee's Principals shall have executed a general release under seal, in a form satisfactory to Franchisor, of any and all claims against Franchisor and Franchisor's officers, directors, shareholders, members and employees in their corporate and individual capacities, including, without limitation, claims arising under federal, state and local laws, rules and ordinances. Franchisee will agree to subordinate any claims Franchisee may have against the transferee to Franchisor, and indemnify Franchisor against all claims brought against Franchisor by the transferee for a period of three (3) years following the transfer;
- 16.3.7 Franchisor has granted written approval of the material terms and conditions of the Transfer, including, without limitation, that the price and terms of
payment will not adversely affect the Franchised Business's operation. However, Franchisor's approval of a Transfer is not in any way a representation or warranty of the transferee's success or the soundness of transferee's decision to purchase the Franchise on such terms and conditions. Franchisee shall provide Franchisor all proposed transfer documents for Franchisor's review at least thirty (30) days prior to a closing of the proposed Transfer;
- 16.3.8 If Franchisee or any Principal finances any part of the sale price of the Transfer, Franchisee or its Principal have agreed that all obligations of the transferee under any notes, agreements or security interests to Franchisee or its Principal will be subordinate to the transferee's obligations to Franchisor;
Source: Item 22 — CONTRACTS (FDD page 56)
What This Means (2024 FDD)
According to Baya Bar's 2024 Franchise Disclosure Document, a franchisee's rights and duties under the franchise agreement are personal to the franchisee and its principals as they exist on the date of execution. Because Baya Bar has made the agreement based on their assessment of the franchisee's character, skills, business ability, and financial capacity, any transfer of interest requires the franchisor's prior written approval. A transfer made without this approval may be voided by Baya Bar.
Specifically, the franchisee cannot directly or indirectly sell, assign, transfer, give, devise, convey, or encumber the agreement, the franchise, the franchised business, or any assets without the franchisor's written consent. This restriction also applies to any transfer or encumbrance that occurs by operation of law. If the franchisee wishes to transfer any interest, they must notify Baya Bar in writing of any bona fide offer to purchase such interest and provide all related information and documentation.
Baya Bar has a right of first refusal, exercisable within 30 days of receiving notification of the offer, to buy the interest for the price and terms of the offer. If Baya Bar exercises this right, they can substitute cash for other forms of consideration, pay the entire purchase price at closing, and have at least 60 days to close the purchase. If Baya Bar does not exercise its right of first refusal within 30 days, the franchisee may transfer the interest to the transferee, provided the terms are no more favorable than those disclosed to Baya Bar and the transfer is still subject to Baya Bar's prior written approval.
As a condition of transfer, the franchisee must pay Baya Bar a transfer fee. This fee is 75% of the then-current initial franchise fee, but it may be reduced to 50% for transfers to an existing franchisee in good standing. The transfer fee is $2,500 for transfers of ownership among existing shareholders or members that do not change management control, or for transfers to a spouse, parent, or child upon death or permanent disability of the franchisee or its principal.