Must an Ella Cafe franchisee pay all outstanding debts before transferring the franchise?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
e's approval or prior notice to Franchisee, provided that the buyer, assignee or transferee agrees in writing to assume all of Franchisor's obligations under this Agreement. Franchisor and its Indemnitees will not be liable for obligations of the transferee arising after the date of transfer.
- 15.2 By Franchisee. Franchisee acknowledges that the rights and duties set forth in this Agreement are personal to Franchisee and that Franchisor 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 Franchisor at least 60 days prior notice of the proposed Transfer, and without obtaining Franchisor' consent. In granting any such consent, Franchisor may impose conditions, including, without limitation, the following:
- (i) Franchisor receives a transfer fee of $10,000 ("Transfer Fee") plus any broker fees and other out-of-pocket costs incurred by Franchisor, including attorneys' fees
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2024 FDD)
The 2024 Ella Cafe Franchise Disclosure Document outlines several conditions a franchisee must meet before transferring their franchise. Specifically, the franchisee must provide Ella Cafe with at least 60 days' notice and obtain the company's consent, which Ella Cafe may condition on several factors.
One of these conditions is the payment of a $10,000 transfer fee, along with any broker fees or out-of-pocket costs Ella Cafe incurs, including attorney's fees. Additionally, the proposed new franchisee must complete Ella Cafe's franchise application process, meet the then-current standards for new franchisees, and be approved by Ella Cafe. The new franchisee also cannot be a competitor and must execute Ella Cafe's current franchise agreement, which may have different terms than the original agreement. All owners of the proposed new franchisee must also provide a guaranty.
While the FDD does not explicitly state that all outstanding debts must be paid before a transfer, it does state that failure to pay any amounts due to Ella Cafe is grounds for termination of the franchise agreement if not cured within 10 days after notice. It is common practice in franchising for franchisors to require all financial obligations to be settled before allowing a transfer to ensure the financial health of the franchise system and protect the brand's reputation. A prospective franchisee should clarify with Ella Cafe whether settling all outstanding debts is an implicit condition for transfer approval.