Under what condition would the Guarantor be released from the guarantee and indemnity related to a Chatime franchise agreement transfer?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
Guarantor's liability under clauses 18.3 and 18.4 is not affected by:
(1) The granting of time, forbearance, or other concession by Franchisor to Franchisee or any Guarantor;
(2) An absolute or partial release of Franchisee or any Guarantor or a compromise with Franchisee or any Guarantor;
(3) A variation of this Agreement;
(4) A transfer of this Agreement by Franchisee;
(5) The termination of this Agreement;
(6) Any disputes or differences between Franchisee and Franchisor;
(7) The fact that this Agreement is wholly or partially void, voidable, or unenforceable;
(8) The non-execution of this Agreement by one or more of the persons named as Guarantor or the unenforceability of the guarantee or indemnity against one or more of Guarantors; or
(9) The exercise or purported exercise by Franchisor of its rights under this Agreement.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, the guarantor is not automatically released from their obligations upon the transfer of a franchise agreement. Specifically, clause 18.6(4) states that the guarantor's liability is not affected by a transfer of the agreement by the franchisee. This means that even if the franchise is sold to a new owner, the original guarantor remains responsible for the franchisee's obligations unless a final release is given by Chatime.
However, clause 13.2 outlines conditions under which Chatime's consent to a franchise transfer will not be unreasonably withheld. One of these conditions, 13.2(5)(a), stipulates that when the assignee is a company, certain individuals nominated by Chatime, such as directors and shareholders, must execute a personal guarantee and indemnity similar to the original guarantor's.
Therefore, while the original guarantor is not automatically released upon transfer, a potential path to release exists if the new franchisee is a company and new guarantees are provided by the assignee's directors, shareholders, or affiliates, as nominated by Chatime. The franchisor must provide a final release to the original guarantor for the release to be effective. A prospective franchisee should discuss the conditions for obtaining a release with Chatime directly.