Does a transfer after death or incapacity of a Chocolate Fish Coffee franchisee have to comply with Section 15.2?
Chocolate_Fish_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
- 15.4 Transfer upon Death or Incapacity. Upon the death or incapacity of Franchisee (or, if Franchisee is an entity, the Owner with the largest ownership interest in Franchisee), the executor, administrator, or personal representative of that person must Transfer the Business to a third party approved by Chocolate Fish Franchising (or to another person who was an Owner at the time of death or incapacity of the largest Owner) within nine months after death or incapacity.
Such transfer must comply with Section 15.2.
- 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;
(vi) Franchisee has paid all monetary obligations to Chocolate Fish Franchising and its affiliates, and to any lessor, vendor, supplier, or lender to the Business, and Franchisee is not otherwise in default or breach of this Agreement or of any other obligation owed to Chocolate Fish Franchising or its affiliates;
Source: Item 23 — RECEIPTS (FDD pages 41–119)
What This Means (2024 FDD)
According to Chocolate Fish Coffee's 2024 Franchise Disclosure Document, a transfer of the franchise upon the death or incapacity of the franchisee must comply with Section 15.2 of the franchise agreement. Specifically, if the franchisee (or the owner with the largest ownership interest, if the franchisee is an entity) dies or becomes incapacitated, their executor, administrator, or personal representative must transfer the business within nine months to a third party approved by Chocolate Fish Coffee. Alternatively, the transfer can be to another person who was an owner at the time of death or incapacity of the largest owner.
Section 15.2 outlines the conditions for transfer by the franchisee, requiring at least 60 days' prior notice to Chocolate Fish Coffee and obtaining their consent. Chocolate Fish Coffee may impose conditions such as a transfer fee of $10,000 plus broker fees and out-of-pocket costs. The proposed assignee must complete Chocolate Fish Coffee's franchise application process, meet their standards for new franchisees, and not be a competitor.
The assignee must also execute Chocolate Fish Coffee's current franchise agreement, which may contain materially different provisions, although they won't be required to pay an initial franchise fee. Additionally, all owners of the proposed assignee must provide a guaranty as per Section 2.5, and 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, and not be in default or breach of any agreement.