Can Desi District Franchise Group impose conditions when granting consent for a franchisee transfer?
Desi_District Franchise · 2024 FDDAnswer from 2024 FDD Document
ICLE 15. TRANSFERS**
- 15.1 By Desi District Franchise Group. Desi District Franchise Group may transfer or assign this Agreement, or any of its rights or obligations under this Agreement, to any person or entity, and Desi District Franchise Group 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 Desi District Franchise Group 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 Desi District Franchise Group at least 60 days prior notice of the proposed Transfer, and without obtaining Desi District Franchise Group's consent. In granting any such consent, Desi District Franchise Group may impose conditions, including, without limitation, the following:
- (i) Desi District Franchise Group receives a transfer fee equal to $10,000 plus any broker fees and other out-of-pocket costs incurred by Desi District Franchise Group;
- (ii) the proposed assignee and its owners have completed Desi District Franchise Group's franchise application processes, meet Desi District Franchise Group's then-applicable standards for new franchisees, and have been approved by Desi District Franchise Group as franchisees;
- (iii) the proposed assignee is not a Competitor;
- (iv) the proposed assignee executes Desi District Franchise Group'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 Desi District Franchise Group 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 Desi District Franchise Group or its affiliates;
- (vii) the proposed assignee and its owners and employees undergo such training as Desi District Franchise Group may require;
Source: Item 22 — CONTRACTS (FDD page 52)
What This Means (2024 FDD)
According to Desi District's 2024 Franchise Disclosure Document, Desi District Franchise Group can impose conditions when granting consent for a franchise transfer. The document states that the rights and duties within the agreement are personal to the franchisee, and Desi District entered the agreement based on the franchisee's skills and abilities. Therefore, a franchisee cannot undergo a transfer without providing Desi District at least 60 days prior notice and obtaining their consent.
Desi District Franchise Group may impose several conditions when granting consent for a transfer. These conditions include receiving a transfer fee of $10,000 plus any broker fees and out-of-pocket costs. The proposed assignee must complete Desi District's franchise application process, meet the standards for new franchisees, and be approved by Desi District. The assignee must not be a competitor and must execute Desi District's current franchise agreement, which may contain different provisions, although they won't be required to pay an initial franchise fee.
Additional conditions include all owners of the proposed assignee providing a guaranty, and the franchisee must have paid all monetary obligations to Desi District and its affiliates, as well as to any lessor, vendor, supplier, or lender to the business. The franchisee must not be in default or breach of the agreement. The proposed assignee, its owners, and employees must undergo any required training, and all parties involved must execute a general release of Desi District in a satisfactory form. Finally, the business must fully comply with Desi District's most recent System Standards.
These stipulations ensure that Desi District maintains control over who operates a franchise under their brand and that the new franchisee meets their standards. This protects the brand's reputation and the interests of other franchisees within the system. A prospective franchisee should carefully consider these conditions, as they can significantly impact the ability to sell the franchise in the future.