What is the requirement for a new Interested Party regarding a guarantee and indemnity upon becoming an Interested Party in a Chatime franchise?
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 the 2025 Chatime Franchise Disclosure Document, when a Chatime franchisee seeks to assign their rights and obligations to a new party, the franchisor may require certain individuals associated with the assignee to execute a personal guarantee and indemnity. Specifically, if the assignee is a company, those directors and shareholders or other Affiliates of the assignee nominated by Chatime must execute and deliver a personal guarantee and indemnity similar to the one given by the original guarantor. This guarantee is in favor of Chatime and must be in the form attached as Exhibit 3 to the franchise agreement.
This requirement ensures that Chatime has recourse against individuals associated with the new franchisee entity, providing an additional layer of security for the franchisor. The personal guarantee and indemnity means that these individuals are personally liable for the obligations of the franchisee company, which could include financial obligations, adherence to the franchise agreement terms, and any liabilities arising from the operation of the Chatime business.
In addition to the personal guarantee and indemnity, these individuals must also execute and deliver a confidentiality and non-competition agreement, in the form attached as Exhibit 4, and execute the new franchise agreement or assignment in their personal capacities. These measures are designed to protect Chatime's confidential information and prevent competition from individuals who have gained knowledge of the Chatime system. These requirements are standard practice in franchising to ensure the ongoing stability and integrity of the franchise system when ownership changes.