What standards must a proposed transferee meet to CJR's satisfaction when transferring a Carls franchise?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
ty, 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.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, a proposed transferee must meet several standards to CJR's satisfaction. The transferee must demonstrate extensive experience in high-quality restaurant operations similar to Carl's Jr. Restaurants. They must also meet the managerial, operational, experience, quality, character, and business standards that CJR promulgates for franchisees. The proposed transferee needs to have a good character, business reputation, and credit rating, along with an organizational management culture compatible with CJR's.
Financially, the transferee must have adequate financial resources and working capital to meet the obligations of the Franchise Agreement, as determined solely by CJR. If the transfer involves a sale, the sales price cannot be so high that it jeopardizes the transferee's ability to operate the franchise successfully and meet financial obligations to CJR, third-party suppliers, and creditors. Unless CJR waives it, the transferee and designated employees must complete the training outlined in Sections 11.A.-B. Furthermore, the transferee and its affiliates must be in compliance with all obligations to CJR or its affiliates under any existing development or franchise agreements.
Carls also requires that all of the franchisee's accrued monetary obligations to CJR and its affiliates, along with other outstanding obligations related to the franchised restaurant, must be satisfied or adequately provided for, as judged by CJR. The franchisee cannot be in material default of any agreement with CJR or its affiliates and must be in good standing. The transferee must complete any required remodels, renovations, or upgrades to conform the restaurant to the current image standards. Finally, the franchisee, all individuals who executed the agreement, and all guarantors must execute a general release and covenant not to sue CJR and its affiliates.