Does Chocolate Fish Coffee have to justify its reasons for withholding consent for a transfer?
Chocolate_Fish_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
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ARTICLE 15. TRANSFERS
- 15.1 By Chocolate Fish Franchising. Chocolate Fish Franchising may transfer or assign this Agreement, or any of its rights or obligations under this Agreement, to any person or entity, and Chocolate Fish Franchising may undergo a change in ownership and/or control, without the consent of Franchisee.
- 15.2 By Franchisee. Franchisee acknowledges that the rights and duties set forth in this Agreement are personal to Franchisee and that Chocolate Fish Franchising entered into this Agreement in reliance on Franchisee's business skill, financial capacity, personal character, experience, and business ability. Accordingly, Franchisee shall not conduct or undergo a Transfer without providing Chocolate Fish Franchising at least 60 days prior notice of the proposed Transfer, and without obtaining Chocolate Fish Franchising's consent. In granting any such consent, Chocolate Fish Franchising may impose conditions, including, without limitation, the following:
- (i) Chocolate Fish Franchising receives a transfer fee equal to $10,000 plus any broker fees and other out-of-pocket costs incurred by Chocolate Fish Franchising;
- (ii) the proposed assignee and its owners have completed Chocolate Fish Franchising's franchise application processes, meet Chocolate Fish Franchising's then-applicable standards for new franchisees, and have been approved by Chocolate Fish Franchising as franchisees;
- (iii) the proposed assignee is not a Competitor;
- (iv) the proposed assignee executes Chocolate Fish Franchising's then-current form of franchise agreement and any related documents, which form may contain materially different provisions than this Agreement (provided, however, that the proposed assignee will not be required to pay an initial franchise fee);
- (v) all owners of the proposed assignee provide a guaranty in accordance with Section 2.5;
Source: Item 23 — RECEIPTS (FDD pages 41–119)
What This Means (2024 FDD)
According to Chocolate Fish Coffee's 2024 Franchise Disclosure Document, the company does not explicitly state that it must justify its reasons for withholding consent for a transfer. The document indicates that a franchisee cannot transfer the agreement without Chocolate Fish Coffee's prior written consent. Chocolate Fish Coffee may impose conditions when granting consent. These conditions include receiving a $10,000 transfer fee plus broker fees and out-of-pocket costs, ensuring the proposed assignee meets Chocolate Fish Coffee's standards for new franchisees and is not a competitor, and that the assignee executes the current franchise agreement.
Additionally, the franchisee must have paid all monetary obligations to Chocolate Fish Coffee and its affiliates, as well as to any lessor, vendor, supplier, or lender to the business, and not be in default or breach of the agreement. These conditions suggest that Chocolate Fish Coffee has considerable discretion in approving or denying a transfer.
Typically, franchise agreements include provisions that allow the franchisor to assess the qualifications of potential transferees to protect the brand and ensure consistent operations. While Chocolate Fish Coffee outlines specific conditions that must be met, the absence of a requirement to justify withholding consent provides the company with flexibility in its decision-making process. A prospective franchisee should seek clarification from Chocolate Fish Coffee regarding the specific reasons that could lead to a denial of transfer and whether the company is willing to provide those reasons in writing.