Is a transfer without CJR's consent considered a breach of the Carls franchise agreement?
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 the 2024 Carls Franchise Disclosure Document, transferring any interest in the franchise without prior written consent from CJR is considered a material breach of the agreement, unless explicitly permitted within the agreement. This includes selling, assigning, or otherwise encumbering any direct or indirect interest in the franchise, the restaurant, or its assets.
This provision is in place because Carls relies on the franchisee's business skills, financial capacity, and character when entering into the agreement. Unauthorized transfers could introduce individuals or entities that do not meet Carls' standards, potentially harming the brand and the franchise system.
However, there are exceptions where transfers may be permitted without CJR's consent, provided certain conditions are met. These include transfers of ownership interests of 20% or less under specific conditions, or transfers following death or permanent incapacity to immediate family members, as long as the franchisee provides written notice and meets other requirements outlined in the agreement.
Any transfer conducted without the required consent, outside of these specific exceptions, would be considered a significant violation, potentially leading to termination of the franchise agreement without an opportunity to correct the breach. This underscores the importance of adhering to the transfer provisions outlined in the franchise agreement.