Does CJR have a right of first refusal regarding proposed Carls franchise transfers?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
to perform, any obligations transferred.
18. TRANSFERS BY FRANCHISEE
A. Franchisee understands and acknowledges that the rights and duties set forth in this Agreement are personal to Franchisee and that CJR has entered into this Agreement in reliance on Franchisee's (and Franchisee's direct and indirect owners') business skill, financial capacity, personal character, experience and demonstrated or purported ability in developing and operating high quality foodservice operations. Accordingly, neither Franchisee nor any immediate or remote successor to any part of Franchisee's interest in this Agreement, nor any individual, partnership, corporation or other legal entity which directly or indirectly has an interest in Franchisee shall sell, assign, transfer, convey, give away, pledge, mortgage, or otherwise encumber any direct or indirect interest in Franchisee, this Agreement, the Franchise, the Franchised Restaurant, the assets of the Franchised Restaurant, the Franchised Location or any other assets pertaining to Franchisee's operations under this Agreement (collectively "Transfer") without the prior written consent of CJR, unless otherwise permitted by this Section.
Except as otherwise provided in this Agreement, any purported Transfer, by operation of law or otherwise, not having the prior written consent of CJR shall be null and void and shall constitute a material breach of this Agreement, for which CJR may terminate this Agreement without providing Franchisee an opportunity to cure the breach.
B. Franchisee shall advise CJR in writing of any proposed Transfer, submit (or cause the proposed transferee to submit) a franchise application for the proposed transferee, submit a copy of all
contracts and all other agreements or proposals and submit all other information requested by CJR relating to the proposed Transfer. If CJR does not exercise its right of first refusal pursuant to Section 18.J., the decision as to whether or not to consent to a proposed Transfer shall be made by CJR in its sole discretion and shall include numerous factors deemed relevant by CJR. These factors may include, but will not be limited to, the following:
- (1) The proposed transferee (and if the proposed transferee is not a natural person, all persons that have any direct or indirect interest in the transferee as CJR may require) must demonstrate to CJR's satisfaction extensive experience in high quality restaurant operations of a character and complexity similar to Carl's Jr. Restaurants; must meet the managerial, operational, experience, quality, character and business standards for a franchisee promulgated by CJR from time to time; must possess a good character, business reputation and credit rating; must have an organization whose management culture is compatible with CJR's management culture; and must have adequate financial resources and working capital, as determined by CJR in its sole discretion, to meet Franchisee's obligations under this Agreement.
- (2) If the Transfer is a sale, the sales price shall not be so high, in CJR's reasonable judgment, as to jeopardize the ability of the transferee to develop, maintain, operate and promote the Franchised Restaurant and meet financial obligations to CJR, third party suppliers and creditors. CJR's decision with respect to a proposed Transfer shall not create any liability on the part of CJR: (a) to the transferee, if CJR consents to the Transfer and the transferee experiences financial difficulties; or (b) to Franchisee or the proposed transferee, if CJR withholds consent to the Transfer. CJR, without any liability to Franchisee or the proposed transferee, has the right, in its sole discretion, to communicate and counsel with Franchisee and the proposed transferee regarding any aspect of the proposed Transfer.
- (3) All of Franchisee's accrued monetary obligations to CJR and its affiliates (whether arising under this Agreement or otherwise) and all other outstanding obligations related to the Franchised Restaurant (including, but not limited to, bills from suppliers, taxes, judgments and any required governmental reports, returns, affidavits or bonds) have been satisfied or, in the reasonable judgment of CJR, adequately provided for. CJR reserves the right to require that a reasonable sum of money be placed in escrow to ensure that all of these obligations are satisfied.
- (4) Franchisee is not then in material default of any provision of this Agreement or any other agreement between Franchisee and CJR or its affiliates, is in good standing as a franchisee with CJR and its affiliates, is not in default beyond the applicable cure period under any real estate lease, equipment lease or financing instrument relating to the Franchised Restaurant and is not in default beyond the applicable cure period with any vendor or supplier to the Franchised Restaurant.
- (5) Franchisee or the proposed transferee, as determined by CJR, must complete all remodel, renovations, re-image, maintenance and facility upgrades to modernize and conform the Franchised Restaurant to the image of the System for new franchised restaurants.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to the 2024 Carls FDD, CJR does have a right of first refusal regarding proposed franchise transfers. The franchisee must inform CJR in writing of any proposed transfer and provide all relevant contracts, agreements, proposals, and other information requested by CJR.
If CJR chooses not to exercise its right of first refusal, the decision to approve or deny the transfer remains at CJR's sole discretion. CJR will consider numerous factors, including the proposed transferee's experience in high-quality restaurant operations, their managerial and operational standards, character, business reputation, credit rating, compatibility with CJR's management culture, and adequate financial resources. If the transfer involves a sale, CJR will also assess whether the sales price could jeopardize the transferee's ability to operate the Carls franchise successfully and meet their financial obligations.
CJR's failure to exercise its right of first refusal does not constitute consent to the proposed transfer or a waiver of any other provisions related to the transfer. The franchisee cannot transfer the interest at a lower price or on more favorable terms than those offered to CJR. If the transaction does not close within 6 months after CJR declined to exercise its right of first refusal, CJR is again given a right of first refusal. The franchisee cannot offer the interest for sale or transfer at public auction or advertise the sale without CJR's written consent.
CJR's consent to a transfer does not waive any claims CJR may have against the transferring party, nor does it waive CJR's right to demand compliance with the agreement's terms by the transferee or its right to approve or deny future transfers. CJR can communicate with both the franchisee and the proposed transferee regarding any aspect of the proposed transfer without incurring any liability.