What constitutes an unauthorized transfer of Development Rights for a Checkersrallys franchisee, and what are the consequences?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
- (a) Before employment or any promotion, your Operating Partner; and,
- (b) If you are a business entity, all Owners with at least a ten percent (10%) direct or indirect legal or beneficial ownership interest in you; all of your officers, directors and managers; and, all persons possessing equivalent positions in any business entity which directly or indirectly owns and/or controls you. You shall procure all such Nondisclosure and
Non-Competition Agreements no later than ten (10) days following the Effective Date (or, if any individual or entity attains any status identified above after the Effective Date, within ten (10) days after such individual or entity's attains such status) and shall furnish to us copies of all executed Nondisclosure and Non-Competition Agreements within ten (10) days following their execution.
7. AREA FRANCHISEE'S RIGHT TO TRANSFER.
- 7.01 Franchisor's Approval. Your rights and duties under this Agreement are personal to you and if you are a business corporation, partnership, limited liability company or any other legal entity, your Owners. Accordingly, neither you nor any of your Owners may Transfer the Development Rights without our prior approval and without complying with the terms and conditions of Section 7. Any transfer without such approval or compliance constitutes a breach of this Agreement and is void and of no force or effect.
- 7.02 Conditions for Approval. If we have not exercised our right of first refusal under Section 7.06, we will not unreasonably withhold our approval of a Transfer of the Development Rights that meets all of the reasonable restrictions, requirements and conditions we impose on the transfer, the transferor(s) and/or the transferee(s), including the following:
- (a) You and your Owners and Affiliates must be in compliance with the provisions of this Agreement and all Franchise Agreements executed pursuant hereto;
- (b) at the time of the proposed Transfer, you have opened and continue to operate at least one (1) Restaurant;
- (c) the proposed transferee and its owners (if the proposed transferee is a corporation, partnership, limited liability company or other legal entity) must provide us on a timely basis all information we request, and must be individuals acting in their individual capacities who are of good character and reputation, who must have sufficient business and development experience, aptitude and financial resources to develop Restaurants pursuant to this Agreement, and who must otherwise meet our approva
Source: Item 23 — RECEIPTS (FDD pages 92–384)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, transferring Development Rights without prior approval from Checkersrallys constitutes a breach of the Area Franchise Agreement, rendering the transfer void and without effect. The Development Rights are considered personal to the franchisee and their owners, meaning that neither the franchisee nor their owners can transfer these rights without Checkersrallys's explicit consent.
To gain approval for a transfer, Checkersrallys outlines several conditions that must be met. These include ensuring that the franchisee and their affiliates are in full compliance with the Area Franchise Agreement and all related Franchise Agreements. Additionally, the franchisee must have opened and be operating at least one Checkersrallys restaurant at the time of the proposed transfer. The proposed transferee must also meet Checkersrallys's standards, providing all requested information and demonstrating good character, sufficient business and development experience, aptitude, and the financial resources necessary to develop restaurants under the agreement.
Furthermore, the transferee must agree to be bound by all provisions of the Area Franchise Agreement for the remainder of its term and acquire all rights under franchise agreements for Restaurants executed by the franchisee. A transfer fee of $20,000 is also required, and the franchisee, owners, and affiliates must execute a general release of claims against Checkersrallys. These conditions ensure that any transfer of Development Rights maintains the integrity and standards of the Checkersrallys franchise system.
It is important to note that Checkersrallys retains the right of first refusal, allowing them to purchase the Development Rights themselves before considering other potential transferees. This provision and the stringent conditions for approval highlight the importance Checkersrallys places on controlling who develops their brand in a given area. Franchisees should carefully consider these requirements and the potential consequences of an unapproved transfer before entering into an Area Franchise Agreement.