If a Carls Jr. franchisee finances a transfer, what must the financing entity agree to?

According to the 2025 Carls Jr. Franchise Disclosure Document, if a franchisee or any person with interest in the franchisee finances any part of the price paid in connection with the transfer of a Carls Jr. franchise, the financing entity must agree to specific conditions. These conditions ensure that Carls Jr.'s financial interests and the franchisee's obligations to Carls Jr. take precedence over the financing entity's claims.

Specifically, the financing entity must agree that all financial obligations of the proposed transferee to the financing entity, as well as any security interests the financing entity holds in the transferred assets, will be subordinate to the transferee's obligations to Carls Jr. This subordination applies to two key areas. First, the transferee's obligation to pay all amounts due to Carls Jr. and its affiliates must take priority. Second, the transferee's obligation to comply with the Franchise Agreement and all other agreements with Carls Jr. or its affiliates must also take precedence.

In practical terms, this means that if a franchisee is struggling financially after the transfer, Carls Jr. will be in a better position to recover any outstanding debts or enforce compliance with the franchise agreement before the financing entity can claim its assets. This requirement protects Carls Jr.'s interests and ensures the continued operation and brand standards of the Carls Jr. system. Prospective franchisees should carefully consider these financing implications and discuss them with potential lenders to ensure they understand the priority of obligations in the event of a transfer.