What is the prohibited action related to transferring Development Rights under the Cream agreement?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
The rights and duties this Agreement creates are personal to you (and if you are conducting business as an Entity, each of your owners) and we have granted you the Development Rights in reliance upon our perceptions of your (or your owners') individual or collective character, skill, aptitude, attitude, business ability, and financial capacity. Accordingly, none of the following may be transferred, mortgaged, pledged, or encumbered, without our prior written approval: (1) this Agreement (or any interest in this Agreement), (2) your Development Rights, or (3) any direct or indirect ownership interest in you. A transfer of your Development Rights may be made only with a transfer of this Agreement. Any transfer without our approval is a breach of this Agreement and has no effect. In this Agreement, the term "transfer" includes a voluntary, involuntary, direct, or indirect assignment, sale, gift, or other disposition, including transfer by reason of merger, consolidation, issuance of additional securities, death, disability, divorce, insolvency, encumbrance, foreclosure, surrender or by operation of law, and/or any transfer of control or management of the Development Rights.
If you intend to list your Development Rights for sale with any broker or agent, you shall do so only after obtaining our written approval of the broker or agent and of the listing agreement. You shall not use or authorize the use of, and no third party shall on your behalf use, any written materials to advertise or promote the transfer of your Development Rights or of any ownership interest in you without our prior written approval.
Source: Item 23 — RECEIPTS (FDD pages 61–192)
What This Means (2025 FDD)
According to the 2025 FDD, Cream requires prior written approval before a franchisee can transfer their Development Rights. The Development Rights cannot be transferred, mortgaged, pledged, or encumbered without Cream's approval. A transfer of Development Rights can only occur with a transfer of the entire agreement. Any transfer done without Cream's approval is considered a breach of the agreement and will not be recognized.
This requirement allows Cream to maintain control over who is developing their brand and ensures that any new developer meets their standards. The term "transfer" is broadly defined to include any voluntary, involuntary, direct, or indirect assignment, sale, gift, or other disposition, including transfers due to merger, consolidation, issuance of additional securities, death, disability, divorce, insolvency, encumbrance, foreclosure, surrender, or by operation of law, and any transfer of control or management of the Development Rights.
Furthermore, if a franchisee intends to list their Development Rights for sale with a broker or agent, Cream must provide written approval of both the broker/agent and the listing agreement. Cream also requires written approval before any written materials are used to advertise or promote the transfer of Development Rights or any ownership interest in the franchisee. This provision ensures that Cream can monitor and control how the opportunity is presented to potential buyers, protecting the brand's image and reputation.
These restrictions on transfer are typical in franchising, as franchisors want to carefully vet and approve new franchisees to protect their brand and ensure consistent operations. Prospective Cream franchisees should carefully consider these restrictions and the conditions for approval, as they could impact their ability to exit the business or transfer their rights in the future.