Does the definition of 'Disposal' for a Chatime franchise include entering into an agreement for sale and purchase?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
| k. "Transfer" by | FA: §1.1(16); §13 | Defined as a "Disposal." Disposal includes any |
|---|---|---|
| franchisee | voluntary, involuntary, direct, or indirect sale, | |
| – | ||
| defined | ||
| assignment, pledge, bequeath, trade, or transfer. | ||
| In | ||
| relation | ||
| to | ||
| a | ||
| business | ||
| entity, | ||
| Disposal | ||
| includes | ||
| entering | ||
| into a transaction in relation to an ownership interest | ||
| that | ||
| results | ||
| in | ||
| a | ||
| person | ||
| other | ||
| than | ||
| the | ||
| registered | ||
| holderof the ownership interest (i) acquiring any legal | ||
| or equitable | ||
| interest in the ownership interest | ||
| including an | ||
| equitable | ||
| interest arising | ||
| from a | ||
| declaration | ||
| of | ||
| trust, an agreement for sale and purchase | ||
| or an option agreement or an agreement creating a | ||
| charge or other encumbrance in the ownership interest, | ||
| (ii) acquiring any | ||
| right | ||
| to | ||
| directly | ||
| or | ||
| indirectly | ||
| receive | ||
| any | ||
| dividends payable | ||
| from | ||
| the | ||
| ownership | ||
| interest, | ||
| (iii) | ||
| acquiring | ||
| any rights | ||
| of | ||
| pre- | ||
| emption, | ||
| first | ||
| refusal, | ||
| or | ||
| like | ||
| control | ||
| over the ownership interest, (iv) acquiring | ||
| any rights of control over the exercise of any voting | ||
| rights or rights to | ||
| appoint | ||
| directors | ||
| attaching | ||
| to | ||
| the | ||
| ownership | ||
| interest, or (v) otherwise acquiring legal or | ||
| equitable rights against the registered holder of the | ||
| ownership interest which | ||
| have | ||
| the | ||
| effect | ||
| of | ||
| placing | ||
| the | ||
| person | ||
| in | ||
| the | ||
| same position as if the person had | ||
| acquired a legal or equitable interest in the ownership | ||
| interest. |
Source: Item 17 — Renewal, Termination, Transfer, and Dispute Resolution (FDD pages 43–52)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, the definition of "Disposal" includes entering into an agreement for sale and purchase. The FDD specifies that a "Transfer" by a franchisee is defined as a "Disposal." This definition is relevant when a franchisee considers selling their Chatime business.
Specifically, the definition of Disposal includes entering into a transaction related to an ownership interest that results in another person acquiring any legal or equitable interest in the ownership interest. This includes an equitable interest arising from an agreement for sale and purchase. This means that even an agreement to sell, before the actual sale is completed, is considered a Disposal under the franchise agreement.
This is a fairly standard clause in franchise agreements. Chatime needs to approve any transfer of ownership, and defining 'Disposal' broadly allows Chatime to exercise control over who becomes a franchisee. This protects the brand and the interests of other franchisees in the Chatime system. A prospective franchisee should understand that entering into a sale agreement triggers the transfer provisions of the franchise agreement, requiring franchisor approval.