Under what circumstances can Checkersrallys refuse a transfer of ownership of a franchise?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
(g) A provision which permits a franchisor to refuse to permit a transfer of ownership of a franchise, except for good cause. This subdivision does not prevent a franchisor from exercising a right of first refusal to purchase the franchise. Good cause shall include, but is not limited to:
- (i) The failure of the proposed transferee to meet the franchisor's then current reasonable qualifications or standards.
- (ii) The fact that the proposed transferee is a competitor of the franchisor or subfranchisor.
- (iii) The unwillingness of the proposed transferee to agree in writing to comply with all lawful obligations.
- (iv) The failure of the franchisee or proposed transferee to pay any sums owing to the franchisor or to cure any default in the franchise agreement existing at the time of the proposed transfer.
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 approval;
(d) the proposed transferee may not be an entity, or be affiliated with an entity, that is required to comply with the reporting and information requirements of the Securities Exchange Act of 1934, as amended;
(e) the transferee and its owners must agree to be bound by all of the provisions of this Agreement for the remainder of its term;
(f) the transferee must acquire, in a concurrent transaction, all of your rights and the rights of your Owners and Affiliates under all franchise agreements for Restaurants executed by your or your Owners or Affiliates pursuant to this Agreement or pursuant to any other development or similar agreement with us;
(g) You or the transferee must pay us a transfer fee equal to $20,000;
(h) You and your Owners and Affiliates must, except to the extent limited or prohibited by applicable law, execute a general release, in form and substance satisfactory to
us, of any and all claims against us, our Affiliates and stockholders, officers, directors, employees, agents, successors and assigns;
(i) you (and your Immediate Family) will not, for two (2) years beginning on the transfer's effective date, engage in any of the activities proscribed in Section 9.02 below; and
(j) You and your Owners and Affiliates must execute such other documents and do such other things as we reasonably require to protect our rights under this Agreement and any Franchise Agreements.
Source: Item 23 — RECEIPTS (FDD pages 92–384)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, Checkersrallys has the right to refuse a transfer of ownership of a franchise for good cause. Good cause includes several specific conditions. These include if the proposed transferee does not meet Checkersrallys's current qualifications or standards, if the proposed transferee is a competitor, or if the proposed transferee is unwilling to comply with all lawful obligations in writing. Additionally, Checkersrallys can refuse a transfer if the franchisee or proposed transferee has not paid all sums owed to Checkersrallys or has failed to correct any existing default in the franchise agreement at the time of the proposed transfer.
Checkersrallys also outlines additional conditions for approval of a transfer. Checkersrallys will not unreasonably withhold approval of a transfer if the transfer meets all reasonable restrictions, requirements, and conditions. These conditions include that the franchisee and their owners must be in compliance with the agreement and all franchise agreements, and the franchisee must have opened and be operating at least one restaurant at the time of the proposed transfer. The proposed transferee and its owners must provide all requested information, be of good character and reputation, and have sufficient business and financial resources to develop restaurants.
Furthermore, the proposed transferee cannot be an entity required to comply with the Securities Exchange Act of 1934. The transferee and its owners must agree to be bound by all provisions of the agreement for the remainder of its term and must acquire all rights under all franchise agreements. A transfer fee of $20,000 must be paid to Checkersrallys. The franchisee and their owners must execute a general release of claims against Checkersrallys. The franchisee and their family must not engage in activities proscribed in Section 9.02 for two years after the transfer. Finally, the franchisee must execute any other documents reasonably required by Checkersrallys to protect its rights.
These stipulations ensure that Checkersrallys maintains control over who becomes a franchisee and that the brand's standards and reputation are upheld. A prospective franchisee should carefully review these conditions to understand the requirements for transferring their franchise in the future.