Can a Bhc tenant sublease or assign the lease to a third party without approval?
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 Bhc's 2025 Franchise Disclosure Document, a franchisee is restricted from assigning the franchise agreement, assets, or a controlling interest without prior written consent from Bhc. Specifically, the franchisee cannot pledge, encumber, or grant security interests to third parties, nor can they sub-franchise or transfer the franchised business without Bhc's express written consent. Bhc may withhold this consent at its discretion. Any attempt to assign the franchise in violation of these terms is considered a material breach of the agreement, potentially leading to immediate termination of the agreement and forfeiture of any rights under it.
Upon approval of a transfer, the franchisee must fulfill certain obligations. They need to bring all accounts with Bhc current and transfer all service agreements or contracts signed by customers to the assignee. Additionally, the franchisee must execute an agreement among themselves, Bhc, and the assignee to formalize the assignment, including a mutual release between the franchisee and Bhc. The franchisee is also required to assign the lease for the Bhc restaurant premises, which includes transferring rights, title, and interest to telephone numbers and utilities to the assignee.
These stipulations ensure that Bhc maintains control over who operates a franchise and protects its brand standards. The requirement for Bhc's consent allows them to vet potential new franchisees, ensuring they meet the company's criteria. The conditions placed on the franchisee during an assignment, such as settling accounts and transferring contracts, aim to ensure a smooth transition and protect the interests of both Bhc and the new franchisee. This is a fairly standard practice in franchising, as franchisors typically want to have a say in who joins their system to maintain consistency and protect their brand reputation.