What claims must a Benihana franchisee release to obtain consent for a Disposition?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
arantee Franchisee's obligations under this Agreement by signing a Personal Guaranty substantially in the form of Exhibit B hereto.
- 11.4 BNC agrees not to unreasonably withhold its consent to any Disposition provided: (a) BNC has not exercised its right of first refusal granted in Section 11.5; (b) all of Franchisee's monetary obligations to BNC have been satisfied in full; (c) Franchisee releases any and all claims it may have against BNC, agrees to remain obligated under the non-competition and non-disclosure of confidential information covenants contained herein, and expressly agrees to remain primarily liable under this Agreement after the transfer for a period of three (3) years (or for the period in which Franchisee receives payment from the Transferee, if longer than three years); (d) BNC is paid an assignment fee of $10,000; (e) the Transferee (i) meets BNC's then-current criteria for new Franchisees, (ii) executes a written agreement assuming all of the Franchisee's obligations under this Agreement and a duplicate original thereof is delivered to BNC, (iii) is of good moral character and reputation, (iv) has a General Manager (who need not be a principal of the Transferee) who has completed the training course then in effect for prospective Franchisees, and (v) has provided BN
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, a franchisee seeking consent for a Disposition must release any and all claims they may have against Benihana. Additionally, the franchisee must agree to remain obligated under the non-competition and non-disclosure of confidential information covenants. They must also expressly agree to remain primarily liable under the Franchise Agreement after the transfer for three years, or for the period in which the franchisee receives payment from the Transferee, if longer.
This requirement means that before a Benihana franchisee can transfer their franchise, they must waive any existing or potential legal claims against Benihana. This could include claims related to breach of contract, misrepresentation, or any other grievance. The franchisee also commits to upholding the non-compete and confidentiality terms, preventing them from using Benihana's trade secrets or competing with the brand, and remains liable under the agreement for a set period even after the transfer.
This condition protects Benihana from future legal disputes with the outgoing franchisee and ensures the continued protection of its confidential information and brand standards. For a prospective franchisee, this highlights the importance of resolving any disputes with Benihana before considering a sale. It also underscores the need to fully understand and comply with the non-compete and confidentiality clauses, as these obligations extend beyond the period of active franchise ownership. The assignment fee is $10,000.
It is a fairly standard practice in franchising for the franchisor to require a release of claims when a franchise is transferred. This helps to ensure a clean break between the outgoing franchisee and the franchisor, and it can help to prevent future disputes. However, it is important for franchisees to carefully consider the implications of such a release before signing it, as it could prevent them from pursuing legitimate claims against the franchisor.