Can Chatime unreasonably withhold consent for a franchise transfer?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
petition agreement, | | | | (viii) you provide us with the purchase agreement |
| between you and transferee and any other documents related to the transfer, and (ix) you establish to our reasonable satisfaction that the transfer would not lead to or have any adverse effect on the System or the Chatime network. This provision is subject to state law. | ||
|---|---|---|
| MDA: §11.3 | We may impose any of the following conditions on our approval of your proposed transfer: (i) you establish to our reasonable satisfaction that the transferee meets our standards, (ii) you pay us a Transfer Fee and any other legal and administrative costs we incur related to the transfer, (iii) you are not in default of any agreement between us or our affiliates, (iv) the transferee signs our then-current form of MDA, or you and the transferee execute an assignment in the form we require, (v) the transferee provide a guarantee and indemnity in our favor in a form we require, (vi) the transferee's owners sign a personal guaranty, (vii) the transferee's owners and managers sign a confidentiality and non-competition agreement, (viii) you provide us with the purchase agreement between you and transferee and any other documents related to the transfer, and (ix) you establish to our reasonable satisfaction that the transfer would not lead to or have any adverse effect on the System or the Chatime network. This provision is subject to state law. | |
| n. Franchisor's right of first refusal to acquire franchisee's business | §13.4 | You may not sell your franchise or otherwise transfer any ownership interest without first offering to sell the ownership interest to us on the same terms and conditions offered by a third party. |
| MDA: §11.4 | You may not sell your MDA or otherwise transfer any ownership interest without first offering to sell the ownership interest to us on the same terms and conditions offered by a third party. | |
| o. Franchisor's option to purchase franchisee's | Not applicable | Not applicable. |
| business | Not | Not |
| applicable | applicable | |
| p. Death or disability of franchisee | Section 13.7 | Upon the death or permanent incapacity of any person with an interest in the franchisee, such interest must be transferred to a third party approved by us within one year following the death or incapacity. We have the right to terminate the agreement if an approved transfer is not completed within the designated period of time. |
| | MDA: §11.7 | Upon the death or permanent incapacity of any person with an interest in the development business, such interest must be transferred to a third party approved by us within one year following the death or incapacity. We have the right to terminate the agreement if an approved transfer is not completed within the designated period of time.
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, Chatime can impose conditions on approving a franchise transfer. Specifically, the document states that Chatime requires the franchisee to establish to their "reasonable satisfaction" that the transferee meets Chatime's standards and that the transfer would not adversely affect the Chatime system or network.
Chatime also requires that the franchisee is not in default of any agreement, that the transferee signs the current MDA (Master Development Agreement) or executes an assignment in the required form, and that the transferee provides a guarantee and indemnity in Chatime's favor. Additionally, the transferee's owners must sign a personal guaranty and a confidentiality and non-competition agreement. The franchisee must also provide Chatime with the purchase agreement and any other documents related to the transfer.
Furthermore, Chatime retains the right of first refusal, meaning a franchisee must first offer to sell the franchise to Chatime on the same terms offered by a third party before proceeding with a sale to that third party. These provisions are subject to state law, which may impose additional restrictions or requirements on franchise transfers.
In the event of the death or permanent incapacity of a franchisee, the interest must be transferred to a third party approved by Chatime within one year. If an approved transfer does not occur within this timeframe, Chatime has the right to terminate the agreement. These conditions collectively suggest that while Chatime has significant control over franchise transfers, the requirement of "reasonable satisfaction" may prevent them from unreasonably withholding consent, although the interpretation of "reasonable" can be subjective and potentially lead to disputes.