When transferring to an entity for convenience of ownership, what sections of the Del Taco agreement must the franchisee and its owners still comply with?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
- 12.5 Transfers to Entities for the Convenience of Ownership. If Franchisee desires to transfer all of Franchisee's interest in this Agreement, or if all of Franchisee's owners desire to transfer all of their ownership interests in Franchisee, to a corporation, limited liability company, or other entity, solely for the convenience of ownership and/or for tax or estate planning reasons, Del Taco shall not unreasonably withhold Del Taco's consent to such transfer, and Del Taco shall not require that Franchisee comply with the provisions and conditions of Section 12.4 or 12.6, if Franchisee complies with all of the following conditions:
- 12.5.1 Franchisee shall provide written notice to Del Taco not less than thirty (30) days prior to the date of the proposed transfer, and shall provide Del Taco with such documents and information as Del Taco may request in support of Franchisee's request, which may include, among other things, entity formation and good standing certifications, evidence of insurance in the name of the new franchisee entity, and bank information for the new franchisee entity.
- 12.5.2 Franchisee and Franchisee's owners shall own all of the outstanding equity interests in the new franchisee entity, and shall own the same percentage ownership interests in the new franchisee entity as they own in Franchisee, and if Franchisee is an individual, Franchisee shall own 100% of the outstanding voting equity interests in the new franchisee entity.
- 12.5.3 All owners of the new franchisee entity shall execute a Guarantee in the form attached as Exhibit E hereto.
- 12.5.4 Franchisee and Franchisee's owners shall comply with the provisions of Sections 12.4.1, 12.4.2, 12.4.6, 12.4.7, and 12.4.11 of this Agreement, and the new entity and its owners shall comply with Sections 5.27 and 5.28 of this Agreement.
- 12.5.5 Franchisee and Franchisee's owners shall execute such transfer documents, agreements and other materials as Del Taco may require.
Source: Item 22 — CONTRACTS (FDD pages 58–59)
What This Means (2025 FDD)
According to the 2025 Del Taco Franchise Disclosure Document, when a franchisee seeks to transfer their interest in the franchise agreement to a corporation, limited liability company, or other entity for ownership convenience or for tax/estate planning, certain conditions apply. Del Taco's consent will not be unreasonably withheld, and the franchisee does not have to comply with all transfer provisions, provided specific conditions are met.
Specifically, the franchisee and its owners must still comply with sections 12.4.1, 12.4.2, 12.4.6, 12.4.7, and 12.4.11 of the Del Taco agreement. Additionally, the new entity and its owners must comply with sections 5.27 and 5.28 of the agreement. These sections likely cover aspects such as adherence to Del Taco's transfer policies, execution of a general release, meeting educational and operational standards, payment of monetary obligations, and compliance with specific requirements for limited liability companies, as well as personal guarantees.
This means that even when transferring ownership for convenience, Del Taco franchisees must still meet certain obligations to ensure the brand's standards and financial interests are protected. Prospective franchisees should carefully review these sections of the franchise agreement to understand their responsibilities during such a transfer. It is also important to note that all owners of the new franchisee entity must execute a Guarantee in the form attached as Exhibit E.