Does the Bhc franchise agreement allow for exceptions regarding third-party beneficiaries, and if so, under what circumstances?
Bhc Franchise · 2025 FDDAnswer from 2025 FDD Document
- (d) Franchisee does not have a right to pledge, encumber, hypothecate or otherwise give any third party a security interest in this Agreement in any manner whatsoever (except that with Franchisor's consent, which will not be unreasonably withheld, Franchisee may pledge a security interest in this Agreement in connection with a Small Business Administration loan), nor sub franchise or otherwise transfer, or attempt to sub franchise or otherwise transfer the Franchised Business, or to transfer or sub franchise a portion but not all of Franchisee's rights hereunder without Franchisor's express prior written consent, which may be withheld for any reason in Franchisor's sole discretion.
- (e) Any attempt by Franchisee to assign the Franchise, all (or substantially all) the assets of the Franchised BHC Restaurant, or a controlling interest in Franchisee (if an entity) in violation of this section 12.2 is void and will (i) constitute a material breach of this Agreement, (ii) cause this Agreement (and in Franchisor's sole discretion any or all other agreements between Franchisee and Franchisor, or between Franchisee and Franchisor's affiliates) to be subject to immediate termination without further notice, and (iii) confer no rights or interest whatsoever under this Agreement upon any other party.
- (f) Upon Franchisor's consent to any Assignment by Franchisee, Franchisee must bring all accounts with Franchisor current and transfer to Franchisee's assignee all service agreements or contracts signed by customers of the Franchised Business conducted at Franchisee's Franchised BHC Restaurant. Also, Franchisee must (i) execute an agreement among Franchisee, Franchisor and Franchisee's assignee effecting the Assignment by Franchisee, which will include a mutual release between Franchisee and Franchisor and (ii) enter into an assignment of the lease for the Franchised BHC Restaurant premises (including an assignment to the assignee of Franchisee's rights, title and interest to telephone numbers and utilities respecting the Franchised BHC Restaurant).
Source: Item 23 — Receipts (FDD pages 52–230)
What This Means (2025 FDD)
According to the 2025 Bhc Franchise Disclosure Document, the franchise agreement generally restricts franchisees from granting security interests to third parties. However, an exception exists if the franchisee obtains Bhc's consent, which will not be unreasonably withheld, to pledge a security interest in the agreement in connection with a Small Business Administration (SBA) loan.
Bhc emphasizes that any attempt by the franchisee to assign the franchise, its assets, or a controlling interest in the franchisee entity without Bhc's express prior written consent is considered void. Such an attempt would constitute a material breach of the agreement, potentially leading to immediate termination of the agreement and any other agreements between the franchisee and Bhc or its affiliates. Furthermore, it would confer no rights or interests under the agreement to any other party.
If Bhc consents to an assignment, the franchisee must ensure all accounts with Bhc are current and transfer all service agreements or contracts signed by customers to the assignee. The franchisee must also execute an agreement among the franchisee, Bhc, and the assignee, which includes a mutual release between the franchisee and Bhc. Additionally, the franchisee must assign the lease for the Bhc Restaurant premises, including rights to telephone numbers and utilities, to the assignee.
These provisions aim to protect Bhc's interests by maintaining control over who operates a Bhc franchise and ensuring financial and operational stability. The exception for SBA loans provides some flexibility for franchisees seeking financing while still requiring Bhc's oversight.