Can CJR terminate the Carls franchise agreement if a franchisee transfers their interest without consent?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
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.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, Carls requires franchisees to obtain prior written consent from CJR before transferring any direct or indirect interest in the franchise agreement, the franchise, the franchised restaurant, its assets, or the franchised location. If a franchisee attempts to transfer any of these interests without obtaining prior written consent from Carls, it will be considered a material breach of the franchise agreement.
Carls has the right to terminate the franchise agreement without providing the franchisee an opportunity to correct or 'cure' the breach. This means that Carls can immediately end the franchise agreement if an unapproved transfer occurs.
This policy protects Carls by ensuring that all franchisees meet their standards for business skill, financial capacity, personal character, and operational ability. It also allows Carls to control who operates restaurants under their brand name. However, Carls does allow some transfers without prior consent if certain conditions are met, such as transfers of a small percentage of ownership or transfers to family members upon death or incapacity, provided specific notice and compliance requirements are followed.