What are Chatime's options regarding the franchise agreement when a franchisee assigns their interest?
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)
According to Chatime's 2025 Franchise Disclosure Document, Chatime's consent to a franchisee's assignment of their entire interest in the franchise and franchised business cannot be unreasonably withheld, provided certain conditions are met. These conditions ensure that the assignee is qualified and that Chatime's interests are protected. The franchisee must demonstrate that the proposed assignee has the necessary financial resources, a good reputation, relevant business experience, and meets Chatime's criteria for new franchisees.
Additionally, the franchisee must pay Chatime a transfer fee and not be in default of the franchise agreement or any related collateral agreements at the time of seeking consent and when the assignment occurs. Chatime has the option to require the assignee to execute either Chatime's then-standard franchise agreement for the remaining term or an assignment of the franchisee's rights and obligations under the existing agreement, using Chatime's required form. Both the franchisee and the assignee must execute any other documents Chatime uses for granting franchises.
If the assignee is a company, Chatime may require the directors, shareholders, or other nominated affiliates to execute a personal guarantee and indemnity, a confidentiality and non-competition agreement, and the new franchise agreement or assignment in their personal capacities. Furthermore, the assignee's proposed manager must be approved by Chatime and successfully complete the required training program. These stipulations ensure that the new operator is fully vetted and committed to Chatime's standards and practices.
These conditions are typical in franchising to maintain brand consistency and protect the franchisor's investment. Prospective Chatime franchisees should carefully consider these requirements, as they will impact the ability to sell or transfer the franchise in the future. Understanding these conditions is crucial for planning an exit strategy and ensuring a smooth transition for any potential buyer.