What constitutes a 'Transfer' requiring CJR's consent under the Carls Development Agreement?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
A. Developer understands and acknowledges that the rights and duties set forth in this Agreement are personal to Developer, that CJR has entered into this Agreement in reliance on Developer's (and Developer'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 and that CJR has entered into this Agreement with the understanding that, except as otherwise reserved by CJR in Section 2, Developer will be the only franchisee of CJR in the Development Territory during the Development Term. Accordingly, neither Developer nor any immediate or remote successor to any part of Developer's interest in this Agreement, nor any individual, partnership, corporation or other legal entity which directly or indirectly has an interest in Developer shall sell, assign, transfer, convey, give away, pledge, mortgage, or otherwise encumber any direct or indirect interest in Developer, this Agreement or any other assets pertaining to Developer's operations under this Agreement (collectively "Transfer") without the prior written consent of CJR. CJR shall be free to withhold consent to any Transfer, without consideration of the factors listed in Section 10.B., if Developer does not propose to Transfer the same interest with respect to all agreements with CJR in the Development Territory.
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
CJR TR Development Agreement – 5/24 Franchisee (Alpha Code) DMA/Area of Development – Number of Restaurants
Source: Item 23 — RECEIPTS (FDD pages 80–480)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, a 'Transfer' requiring prior written consent from CJR includes any action where the Developer or any party with interest in the Developer sells, assigns, transfers, conveys, gives away, pledges, mortgages, or otherwise encumbers any direct or indirect interest in the Development Agreement, or any other assets related to the Developer's operations under the agreement. This broad definition ensures that Carls maintains control over who is involved in developing and operating franchises within the Development Territory.
Carls's consent to a Transfer is not guaranteed. Carls is free to withhold consent if the Developer does not propose to transfer the same interest with respect to all agreements with CJR in the Development Territory. Any Transfer without prior written consent from Carls is considered null and void, constituting a material breach of the Development Agreement, which may lead to termination of the agreement without an opportunity to cure the breach.
There are exceptions where CJR's prior written consent is not required. These include certain transfers of ownership interests of 20% or less, provided the Continuity Group owns at least 66% of all ownership interests in Developer, and transfers following death or permanent incapacity to immediate family members or the Continuity Group. Additionally, the issuance or exercise of options under qualified stock option plans or employee stock ownership plans is not considered a Transfer, provided that no more than 49% of the Developer's outstanding voting securities are subject to such plans. If the Developer was a publicly-held entity, transfers of ownership interests require consent only if they result in significant changes in shareholder control or membership of the Continuity Group.
Before a Transfer can take effect with Carls's consent, the transferor must pay a nonrefundable Transfer fee of $2,500. The Developer and the proposed transferee must also execute an assignment agreement and any necessary amendments to reflect the Transfer. The transferor remains liable for all obligations to CJR incurred before the Transfer and must provide instruments to evidence this liability. The transferee may also be required to complete development training programs. These conditions ensure that Carls's interests are protected and that the new party is adequately trained and committed to upholding the standards of the franchise system.