What constitutes a 'Transfer' requiring CJR's consent under the Carls franchise agreement?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
fforts to supervising the operation of the Franchised Restaurant and those other restaurants (that are franchised by CJR or its affiliates) operated by Franchisee in the same geographic market and shall not engage in any other business or activity, directly or indirectly, that requires substantial management responsibility.
- (2) Unless waived in writing by CJR, the Multi-Unit Manager shall maintain his primary residence within a reasonable driving distance of the Franchised Restaurant.
- (3) The Multi-Unit Manager shall successfully complete the FMTP and any additional training required by CJR.
- (4) CJR shall have approved the Multi-Unit Manager, and not have later withdrawn that approval.
If the Multi-Unit Manager no longer qualifies as such, Franchisee shall designate another qualified person to act as Multi-Unit Manager within 30 days after the date the prior Multi-Unit Manager ceases to be qualified. Franchisee's designee to become the Multi-Unit Manager must successfully complete the FMTP and any additional training required by CJR.
17. TRANSFERS BY CJR
CJR shall have the absolute, unrestricted right, exercisable at any time, to transfer and assign all or any part of its rights and obligations under this Agreement to any person or legal entity without the consent of Franchisee. Franchisee agrees that CJR will have no liability after the effective date of transfer or assignment for the performance of, or any failure 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.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, a 'Transfer' requiring CJR's prior written consent includes any action where the franchisee or any successor sells, assigns, transfers, conveys, gives away, pledges, mortgages, or otherwise encumbers any direct or indirect interest in the franchise. This encompasses the franchise agreement itself, the franchised restaurant, its assets, the franchised location, or any other assets related to the franchisee's operations under the agreement.
Carls requires this consent because the agreement is personal to the franchisee, and CJR relies on the franchisee's business skills, financial capacity, character, experience, and ability to operate a high-quality foodservice operation. Any transfer without prior written consent, unless specifically permitted, is considered a material breach of the agreement, potentially leading to termination without an opportunity to correct the breach.
There are exceptions where CJR's consent is not required for certain transfers, provided specific conditions are met. These include transfers of ownership interests of 20% or less if the Continuity Group owns at least 66% after the transfer, or transfers following death or incapacity to immediate family members or the Continuity Group. Franchisees must provide written notice to CJR 30 days before the transfer, ensure they are not in default, and comply with Section 16 requirements. Additionally, granting a security interest in the business requires CJR's prior written consent, which will not be unreasonably withheld.