Does the Chatime franchise agreement require either party to consider potential negative impacts on the other party when making decisions related to the agreement?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisor must not unreasonably withhold its consent under clause 13.2(2) if the sale, assignment or other Disposal is of the whole of Franchisee's interest in the Franchise and the Franchised Business and each of the following conditions are satisfied:
- (1) Franchisee establishes to Franchisor's reasonable satisfaction that the proposed assignee (and its Owners and directors if the assignee is a company):
- (a) Possesses the financial resources necessary to conduct and operate the Franchised Business as a franchisee and to service any borrowings it makes in order to acquire The Franchised Business;
- (b) Is a reputable and responsible party and has the business experience and capabilities necessary to operate the Franchised Business successfully; and
- (c) Otherwise meets Franchisor's criteria for the selection of new Chatime franchisees;
- (2) Franchisee pays to Franchisor the Transfer Fee;
- (3) Franchisee, both when seeking consent to the assignment and when the assignment is to occur, is not in default under this Agreement or any Collateral Agreement;
- (4) At the option of Franchisor:
- (a) The assignee executes Franchisor's then-standard form franchise agreement for the balance remaining of the Initial Term (including any existing option for a New Term); or
- (b) Franchisee and the assignee execute an assignment of Franchisee's rights and obligations under this Agreement to the assignee in a form required by Franchisor,
and Franchisee and the assignee execute any other documents then used by Franchisor for the grant of Chatime franchises;
- (5) When the assignee is a company, those directors and shareholders or other Affiliates of the assignee nominated by Franchisor each:
- (a) Executed and deliver a personal guarantee and indemnity and undertake similar personal restraints to those given by Guarantor under this Agreement in favor of, and in the form attached as Exhibit 3;
- (b) Executed and deliver a confidentiality and non-competition agreement in the form attached as Exhibit 4; and
- (c) Execute the new franchise agreement or assignment in their personal capacities;
- (6) The assignee's proposed manager is approved by Franchisor and successfully completes
Franchisor's required training program;
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
Based on the 2025 Chatime Franchise Disclosure Document excerpts, there is no explicit clause requiring either Chatime or the franchisee to consider the potential negative impacts on the other party when making decisions related to the franchise agreement. However, the agreement does stipulate conditions under which Chatime must not unreasonably withhold consent, such as in the case of a franchise transfer, suggesting a degree of consideration for the franchisee's interests.
Several clauses address the rights and obligations of both parties, particularly concerning legal compliance and financial responsibilities. For instance, amendments for New York, Illinois, and North Dakota franchisees emphasize adherence to state laws and protect franchisees' rights, indicating an awareness of potential legal ramifications for both parties. The indemnity clause outlines the franchisee's responsibility to indemnify Chatime against losses and liabilities arising from various actions, including breaches of the agreement or negligence, which implies a consideration of potential financial impacts on Chatime.
While the FDD excerpts do not contain a specific clause mandating consideration of negative impacts, the inclusion of provisions addressing legal compliance, franchisee rights in specific states, and indemnity obligations suggests that both Chatime and the franchisee are expected to act reasonably and responsibly within the bounds of the agreement and applicable laws. A prospective franchisee should seek clarification from Chatime regarding how decisions are made that could affect both parties and whether there are internal policies or practices that promote fairness and mutual consideration.