What constitutes a material default that would prevent a Carls Jr. franchise transfer?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
(7) There is a material breach by Developer of any obligation under Section 12.
(8) Any Transfer that requires CJR's prior written consent occurs without Developer having obtained that prior written consent.
(9) CJR discovers that Developer made a material misrepresentation or omitted a material fact in the information that was furnished to CJR in connection with its decision to enter into this Agreement.
(10) Developer knowingly falsifies any report required to be furnished CJR or makes any material misrepresentation in its dealings with CJR or fails to disclose any material facts to CJR.
(11) Developer, the Development Principal, any stockholder, member, partner, director or officer of Developer, any member of the Continuity Group or any 10% Owner is convicted of, or pleads no contest to, a felony charge, a crime involving moral turpitude, or any other crime or offense that is reasonably likely, in the sole opinion of CJR, to adversely affect CJR, its affiliates, the Carl's Jr.
System.
(12) Developer, the Development Principal, any member of the Continuity Group, any 10% Owner or any Affiliated Entity remains in default beyond the applicable cure period: (a) under any other agreement with CJR or its affiliates; (b) under any real estate lease, equipment lease, or financing instrument relating to a Franchised Restaurant; or (c) with any vendor or supplier to a Franchised Restaurant; provided that if the default is not by Developer, Developer is given written notice of the default and 30 days to cure said default.
(13) Developer fails or refuses to comply with any other provision of this Agreement or any requirement of the Carl's Jr.
System and does not correct the failure or refusal within 30 days (10 days for monetary defaults) after receiving written notice of default.
- (4) Developer is not then in material default of any provision of this Agreement or any other agreement between Developer and CJR or its affiliates, is in good standing as a franchisee with CJR and its affiliates, is not in default beyond the applicable cure period under any real estate lease, equipment lease or financing instrument relating to Developer's Franchised Restaurants and is not in default beyond the applicable cure period with any vendor or supplier to Developer's Franchised Restaurants.
Source: Item 23 — RECEIPTS (FDD pages 76–364)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, several conditions constitute a material default that would prevent a franchise transfer. Carls Jr. will not approve a transfer if the developer is in material default of any agreement with Carls Jr. or its affiliates. This includes being in default beyond the applicable cure period under any real estate lease, equipment lease, or financing instrument related to the franchised restaurants, or with any vendor or supplier.
A transfer will also be blocked if the developer has outstanding monetary obligations to Carls Jr. or its affiliates, or any other outstanding obligations related to the franchised restaurants, such as supplier bills, taxes, or required governmental reports. All these obligations must be satisfied or adequately provided for in Carls Jr.'s reasonable judgment.
Furthermore, Carls Jr. can prevent a transfer if a prior written consent was not obtained, if the developer made a material misrepresentation or omitted a material fact when applying for the franchise, or if the developer knowingly falsified reports or misrepresented information to Carls Jr. Additionally, a felony conviction or a crime involving moral turpitude by the developer, a Development Principal, any stockholder, member, partner, director or officer of Developer, any member of the Continuity Group or any 10% Owner could also prevent a transfer. A failure to comply with any provision of the Development Agreement or any requirement of the Carl's Jr. system, if not corrected within 30 days (10 days for monetary defaults) after notice, also constitutes a material default.