Under what conditions can Extreme Art Studio refuse a transfer of ownership of a franchise in Michigan?
Extreme_Art_Studio Franchise · 2024 FDDAnswer from 2024 FDD Document
This section does not require a renewal provision.
- (f) A provision requiring that arbitration or litigation be conducted outside the State of Michigan.
This shall not preclude you from entering into an agreement, at the time of arbitration, to conduct arbitration at a location outside this state.
- (g) A provision which permits us to refuse to permit a transfer of ownership of a Franchise, except for good cause.
This subdivision does not prevent us from exercising a right of first refusal to purchase the Franchise.
Good cause shall include, but is not limited to:
(i) the failure of the proposed transferee to meet our then-current reasonable qualifications or standards.
(ii) the fact that the proposed transferee is a competitor of us or our subfranchisor.
(iii) the unwillingness of the proposed transferee to agree in writing to comply with all lawful obligations.
(iv) your or proposed transferee's failure to pay any sums owing to us or to cure any default in the Franchise Agreement existing at the time of the proposed transfer.
Source: Item 23 — RECEIPTS (FDD pages 49–214)
What This Means (2024 FDD)
According to the 2024 Extreme Art Studio Franchise Disclosure Document, there are specific conditions under which Extreme Art Studio can refuse a transfer of ownership of a franchise in Michigan. Extreme Art Studio can only refuse a transfer for "good cause." This stipulation does not prevent Extreme Art Studio from exercising a right of first refusal to purchase the franchise.
According to the FDD, "good cause" includes several scenarios. First, Extreme Art Studio can refuse a transfer if the proposed transferee does not meet the then-current reasonable qualifications or standards that Extreme Art Studio has in place. Second, if the proposed transferee is a competitor of Extreme Art Studio or its subfranchisor, the transfer can be denied. Third, refusal is permitted if the proposed transferee is unwilling to agree in writing to comply with all lawful obligations associated with the franchise agreement.
Finally, Extreme Art Studio can refuse a transfer if the franchisee or the proposed transferee has failed to pay any sums owing to Extreme Art Studio or has failed to cure any default in the Franchise Agreement existing at the time of the proposed transfer. These conditions provide clarity to potential franchisees regarding the circumstances under which a transfer of ownership may be rejected, ensuring that Extreme Art Studio maintains control over who operates franchises within its system and that the brand's standards and financial interests are protected.