What actions are considered a 'Transfer' for a Chop5 Salad Kitchen franchise?
Chop5_Salad_Kitchen Franchise · 2024 FDDAnswer from 2024 FDD Document
ring, security or improvement of these systems.
"Transfer" means a transfer or assignment of: (a) the Franchise Agreement or ADA; (b) the Restaurant's assets (other than the sale of fixtures or equipment in the ordinary course of business); (c) any ownership interest in the entity that is the "franchisee" or "area developer"; or (d) the franchised business you conduct under the Franchise Agreement or ADA.
"Travel Expenses" means all travel, meals, lodging, local transportation and other living expenses and costs incurred: (a) by us and our trainers, field support personnel, auditors and/or other representatives to visit your Restaurant; or (b) by you or your personnel to attend training programs or conferences.
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- CPI Adjustments: All fees expressed as a fixed dollar amount are subject to adjustment based on changes to the Consumer Price Index (CPI) in the United States. We will review these fees every 2 years and may increase the fees based on changes to CPI, but only if the increase to CPI is more than 5% higher than the corresponding CPI in effect on: (a) the effective date of the Franchise Agreement (for the initial fee adjustment); or (b) the date we implemented the last fee adjustment (for subsequent fee adjustments). We will notify you of any CPI adjustment at least 60 days before the fee adjustment becomes effective.
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- Cooperative Advertising Fee: We may establish regional advertising cooperatives for purposes of pooling advertising funds to be used in discrete regions. We may either: (a) collect cooperative advertising fees and remit them to the applicable cooperative; or (b) require you to pay these fees directly to the cooperative. Cooperative advertising fees are uniformly imposed on all Restaurants in the cooperative, including company-owned Restaurants. We may set the minimum cooperative advertising fee, which may be increased by majority vote of all members of the cooperative (but will not exceed the maximum amount specified in the table above). Each member is entitled to 1 vote for each Restaurant that is owned by the member and located in the cooperative. We and our affiliates will be members of the cooperative (and have the same voting rights as franchisees) with respect to company-owned Restaurants located in the cooperative. However, if the majority of Restaurants in the cooperative are company-owned Restaurants, we will not increase the cooperative advertising fee unless a majority of all franchisee members vote in favor of the increase. All cooperative advertising fees you pay are credited towards your Local Advertising Commitment. The maximum total amount we may charge at any given time for the brand fund fee, Local Advertising Commitment and Cooperative Advertising Fee is capped at 8.5% of Gross Sales. There were no advertising cooperatives in effect as of December 31, 2022.
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- Liquidated Damages: You must pay us liquidated damages if: (a) we terminate the Franchise Agreement
due to your default;
Source: Item 6 — OTHER FEES (FDD pages 12–17)
What This Means (2024 FDD)
According to Chop5 Salad Kitchen's 2024 Franchise Disclosure Document, a 'Transfer' involves the transfer or assignment of several key elements related to the franchise. These include the Franchise Agreement or Area Development Agreement (ADA), the restaurant's assets (excluding the sale of fixtures or equipment in the ordinary course of business), any ownership interest in the entity that is the franchisee or area developer, or the franchised business conducted under the Franchise Agreement or ADA. This definition is important for prospective franchisees to understand, as any of these actions would be considered a transfer and may trigger certain requirements or fees as outlined in the FDD.
Notably, the FDD also defines specific exceptions to what constitutes a transfer. A 'Permitted Transfer' includes a transfer from one approved owner to another or a transfer to a newly established business entity where the transferring owners collectively own and control 100% of the ownership interests. A 'Minority Interest Transfer' involves the transfer by an owner of less than 20% of the ownership interests in the franchisee or area developer entity, provided it doesn't result in the Operating Partner owning less than 5% of the ownership interests. These exceptions may be relevant for franchisees considering changes in ownership structure or business arrangements.
Understanding these definitions is crucial because Chop5 Salad Kitchen charges a transfer fee for transfers that are not considered 'Permitted Transfers' or 'Minority Interest Transfers'. The transfer fee is the greater of $4,000 or 10% of the then-current standard initial franchise fee for a Franchise Agreement transfer, and $15,000 for an ADA transfer. Additionally, if Chop5 Salad Kitchen's broker finds the buyer, the franchisee must reimburse Chop5 Salad Kitchen for all commissions paid to the broker. Therefore, franchisees should carefully evaluate any potential transfer in light of these definitions and associated costs.