Under what circumstances related to obligations under the Chatime Franchise Agreement can a default occur?
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;
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to the 2025 Chatime Franchise Disclosure Document, a franchisee can be in default under the Franchise Agreement if they are not in compliance with the agreement when seeking consent to assignment. Specifically, if a Chatime franchisee wants to sell or transfer their franchise interest, they must obtain Chatime's consent. As part of this process, the franchisee must demonstrate that the proposed assignee meets Chatime's criteria, pay a transfer fee, and ensure the assignee executes the required agreements.
However, Chatime will not grant consent if the franchisee is in default of the Franchise Agreement or any related collateral agreements at the time they seek consent for the assignment or when the assignment is scheduled to occur. This means any existing violations or failures to meet the obligations outlined in the agreements can prevent the transfer from proceeding.
This provision protects Chatime by ensuring that franchises are transferred to qualified and compliant operators. For a prospective franchisee, it highlights the importance of maintaining compliance with all aspects of the Franchise Agreement and any Collateral Agreements. Failure to do so can not only jeopardize the operation of the franchise but also limit the ability to sell or transfer the business in the future.