What is the Chem-Dry franchisee's covenant regarding the transfer of title to the equipment?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
Franchisee acknowledges that the Franchise Agreement imposes restrictions and limitations on the resale of the Equipment. Franchisee acknowledges that the Equipment may not be sold, leased, or rented to or used by any other party, except under the conditions stated on the attached repurchase schedule, as provided in the Franchise Agreement, or as permitted in writing by CDI. The Equipment is proprietary and authorized for use only within the Chem-Dry® franchise network. Franchisee covenants that Franchisee will not transfer title to the Equipment except in one of these three ways:
Sell the Equipment to another Chem-Dry Franchisee in good standing under its franchise agreement at a mutually acceptable price. CDI has first right of refusal to purchase the Equipment and must approve any transaction. If CDI financed any portion of the purchase price of the Equipment, the transferee will pay the proceeds to CDI if there is any outstanding balance under the Schedule for the Equipment prior to transfer of the Equipment. At the time of transfer Franchisee's account with CDI must be current and the purchasing Franchisee may not have any pending default under any agreement with the proposed transferee.
If Franchisee is terminating or not renewing the Franchise Agreement and Franchisee owns another Chem-Dry franchise, the Equipment (and the liability for any amount owing on the purchase price of the Equipment) will be transferred to that franchise upon written request.
CDI will repurchase the Equipment in accordance with the table below. The percentages shown assume reasonable wear and tear and regular maintenance. If any components of the original piece of Equipment are missing, or there is damage or excessive wear and tear, CDI reserves the right to make a corresponding adjustment to the repurchase price. The original Total Equipment Price under its Schedule will be reduced to the applicable percentage in effect based on the time elapsed after original purchase.
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to Chem-Dry's 2024 Franchise Disclosure Document, a franchisee acknowledges that the Franchise Agreement places restrictions on reselling the equipment. The equipment cannot be sold, leased, or rented to another party unless it meets the conditions stated in the repurchase schedule, as provided in the Franchise Agreement, or with written permission from Chem-Dry. The equipment is proprietary and only authorized for use within the Chem-Dry franchise network.
The franchisee covenants not to transfer title to the equipment except in one of three ways. First, they can sell the equipment to another Chem-Dry franchisee in good standing under its franchise agreement at a mutually acceptable price. Chem-Dry has first right of refusal to purchase the equipment and must approve any transaction. If Chem-Dry financed any portion of the purchase price of the equipment, the transferee will pay the proceeds to Chem-Dry if there is any outstanding balance under the Schedule for the Equipment prior to transfer of the Equipment. At the time of transfer, the franchisee's account with Chem-Dry must be current, and the purchasing franchisee may not have any pending default under any agreement with the proposed transferee.
Second, if a franchisee is terminating or not renewing the Franchise Agreement and owns another Chem-Dry franchise, the equipment (and the liability for any amount owing on the purchase price of the equipment) will be transferred to that franchise upon written request. Finally, Chem-Dry will repurchase the equipment in accordance with a provided table. The percentages shown assume reasonable wear and tear and regular maintenance. If any components of the original piece of equipment are missing, or there is damage or excessive wear and tear, Chem-Dry reserves the right to make a corresponding adjustment to the repurchase price. The original Total Equipment Price under its Schedule will be reduced to the applicable percentage in effect based on the time elapsed after original purchase.
This means a Chem-Dry franchisee has limited options for transferring ownership of their equipment. They can sell to another franchisee (with Chem-Dry's approval and right of first refusal), transfer it to another Chem-Dry franchise they own, or sell it back to Chem-Dry based on a predetermined repurchase schedule. This ensures that the equipment remains within the Chem-Dry system and maintains brand standards. A prospective franchisee should carefully review the repurchase schedule and understand the conditions under which they can transfer the equipment to avoid potential financial losses or restrictions.