Under what conditions can a transfer of ownership interest in a Carls franchise be permitted without CJR's prior written consent?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
G. Notwithstanding the provisions of Sections 18.A. and B., CJR agrees that certain Transfers shall be permitted without CJR's prior written consent, provided all of the following conditions are satisfied:
(1) The Transfer is a transfer of:
(a) An ownership interest in Franchisee of 20% or less, provided that after the Transfer the Continuity Group owns at least 66% of all ownership interests in Franchisee; or
(b) Ownership interests in Franchisee following the death or permanent incapacity of a person with an ownership interest in Franchisee, provided that the Transfer is to the parent, sibling, spouse or children of that person or to a member of the Continuity Group.
(2) Franchisee provides CJR written notice of its intent to undertake the Transfer at least 30 days prior to the effective date of the Transfer, together with documents demonstrating that the Transfer meets the requirements of this Section.
(3) At the time of Franchisee's notice to CJR, Franchisee is not in default of this Agreement or any other agreements between Franchisee and CJR or its affiliates.
(4) In connection with the Transfer, Franchisee and all persons who will have an ownership interest in Franchisee after the Transfer fully comply with the requirements of Section 16.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to the 2024 FDD, Carls outlines specific conditions under which a franchisee can transfer ownership interests without obtaining prior written consent from CJR. These exceptions are designed to provide some flexibility in ownership structure while ensuring Carls maintains control over the franchise network's integrity.
The first condition involves transferring an ownership interest of 20% or less, provided that the Continuity Group (defined elsewhere in the FDD) retains at least 66% of all ownership interests in the franchisee after the transfer. This allows for minor ownership adjustments without requiring franchisor approval. The second condition applies to transfers following the death or permanent incapacity of an owner, where the transfer is to a parent, sibling, spouse, children, or a member of the Continuity Group. This provision ensures that ownership can pass to close family members or existing stakeholders without unnecessary hurdles.
However, even when these conditions are met, the franchisee must still provide Carls with written notice of the intended transfer at least 30 days before it occurs. This notice must include documentation demonstrating that the transfer meets all the specified requirements. Additionally, the franchisee must not be in default of the Franchise Agreement or any other agreements with Carls or its affiliates at the time of the notice. Finally, the franchisee and all individuals who will have an ownership interest after the transfer must fully comply with the requirements outlined in Section 16 of the Franchise Agreement, which likely pertains to franchisee qualifications and standards.
These stipulations ensure that while certain transfers can occur without prior consent, Carls still retains oversight and can ensure compliance with its standards and requirements. A prospective franchisee should carefully review Section 16 of the Franchise Agreement to understand the full scope of these requirements and consult with Carls directly to clarify any uncertainties regarding transfer conditions.