If Carvel terminates the franchise agreement, is the franchisee obligated to assign their interest in the Lease for the Accepted Location to Carvel or its designee?
Carvel Franchise · 2025 FDDAnswer from 2025 FDD Document
If we terminate this Agreement under Section 17 (Default and Termination), you will, at our option, assign to us, or another franchisee we designate, your interest in any Lease for the Accepted Location, and will vacate the Franchised Business promptly and completely, rendering all necessary assistance to us or the other franchisee to enable it to take prompt possession.
If you or one of your affiliates owns the Accepted Location, we may elect to purchase the Accepted Location or, at our option, lease the Accepted Location from you or that affiliate for an initial five-year term with one renewal term of five years (at our option) on commercially reasonable terms.
If you and we cannot agree on a
purchase price for the Accepted Location in a reasonable time, the purchase price will be determined by three independent appraisers using the Appraisal Process. If we elect to exercise this option to purchase, we may set off all amounts you owe us or our affiliates under this Agreement against any payments for the purchase. You (and your Owners) agree to cause your affiliate to comply with these requirements.
Source: Item 23 — Receipts (FDD pages 100–353)
What This Means (2025 FDD)
According to Carvel's 2025 Franchise Disclosure Document, if Carvel terminates the franchise agreement due to franchisee default, the franchisee is obligated, at Carvel's option, to assign their interest in the lease for the accepted location to Carvel or another franchisee designated by Carvel. The franchisee must also vacate the franchised business promptly and completely and provide all necessary assistance to enable Carvel or its designee to take possession.
Additionally, if the franchisee or one of its affiliates owns the accepted location, Carvel has the option to purchase the location or lease it for an initial five-year term with one renewal term of five years at commercially reasonable terms. If Carvel and the franchisee cannot agree on a purchase price within a reasonable time, the price will be determined by three independent appraisers using the Appraisal Process. Carvel can also offset any amounts the franchisee owes to Carvel or its affiliates against payments for the purchase.
This clause is significant for prospective franchisees as it gives Carvel considerable control over the location of the franchise in the event of a termination. Franchisees should carefully consider the implications of this clause, especially if they own the property where the franchise is located. It is also important to understand the conditions under which Carvel can terminate the agreement, as outlined in Section 17, to assess the risk of this clause being invoked.