Does the requirement for franchisor approval apply to both direct and indirect interests in the Chatime Franchise Agreement?
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. | ||
| MDA: | Same | |
| §1.1(24) | as above. | |
| l. Franchisor approval | FA: §13.2 | You may only transfer a direct or indirect interest in your |
| of | Franchise Agreement with our prior written consent, | |
| transfer | ||
| by | ||
| franchisee | ||
| which will not be unreasonably withheld. | ||
| MDA: §11.2 | You may only transfer a direct or indirect interest in your | |
| MDA | ||
| with our prior written consent, which will not be | ||
| unreasonably withheld. |
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, franchisor approval is required for the transfer of both direct and indirect interests in the Franchise Agreement. Specifically, a franchisee may only transfer a direct or indirect interest in their Franchise Agreement with Chatime's prior written consent, which, according to the FDD, will not be unreasonably withheld.
This requirement means that if a franchisee wants to sell their franchise outright (a direct transfer) or if they want to sell a portion of their ownership in the business, such as shares in a corporation that owns the franchise (an indirect transfer), they must first obtain Chatime's approval. This provision allows Chatime to maintain control over who becomes a franchisee and ensures that new owners meet their standards.
Chatime may impose conditions on approving a transfer. These conditions include ensuring the transferee meets Chatime's standards, payment of a transfer fee and associated costs, ensuring the franchisee is not in default, requiring the transferee to sign the current Franchise Agreement or an assignment, providing a guarantee and indemnity, completing training programs, and ensuring the transferee's owners sign personal guarantees and confidentiality agreements. These conditions are typical in franchising to protect the brand and ensure the continued success of the franchise system.