Under the Belocal franchise agreement, what are the consequences if a Belocal franchisee's principal transfers interest in the franchise without approval?
Belocal Franchise · 2025 FDDAnswer from 2025 FDD Document
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- F. Transfer Damages. If Franchisee or any of its Principals engages in a transfer without first complying with the applicable transfer provisions of this Agreement (including, without limitation, the provisions of this Section 9), Franchisee agrees to pay Franchisor, within 15 days of receiving notice from Franchisor, in addition to the amounts owed under this Agreement, transfer damages equal to the greater of (a) 15% of the price paid by the transferee to Franchisee or any Principal, as applicable; or (b) $25,000 ("Transfer Damages"). The parties to this Agreement acknowledge and agree that it would be impracticable to determine precisely the damages that Franchisor would incur from any unauthorized transfer of this Agreement. The parties consider this Transfer Damages provision to be a reasonable, goodfaith estimate of those damages.
10. DEFAULT AND TERMINATION
- A. Default and Termination. Franchisee acknowledges that each of Franchisee's obligations described in this Agreement is a material and essential obligation; that nonperformance of such obligations will adversely and substantially affect Franchisor and the System; and that the exercise by Franchisor of the rights and remedies set forth herein is appropriate and reasonable.
Source: Item 22 — CONTRACTS (FDD page 71)
What This Means (2025 FDD)
According to Belocal's 2025 Franchise Disclosure Document, if a franchisee or its principal engages in a transfer without complying with the agreement's transfer provisions, Belocal has the right to assess transfer damages. These damages are equal to the greater of 15% of the price paid by the transferee or $25,000. This payment is due within 15 days of receiving notice from Belocal, in addition to any other amounts owed under the franchise agreement.
Furthermore, any purported assignment or transfer made in violation of the franchise agreement is considered null and void. It also constitutes a material breach of the agreement. Belocal may also terminate the franchise agreement immediately upon written notice if the franchisee or any principal transfers or attempts to transfer any interest in the agreement, the franchisee, or the franchised business in violation of Section 9 of the agreement.
These terms highlight the importance of obtaining prior approval from Belocal before any transfer of interest. The financial penalties and potential for immediate termination underscore the seriousness with which Belocal views unauthorized transfers. A prospective franchisee should carefully consider these stipulations and ensure they fully understand the process and requirements for seeking approval for any future transfer of ownership or interest in the Belocal franchise.