Considering the Hardees litigation (Item 3), what are the potential implications for a franchisee's ability to renew their franchise agreement or transfer ownership of their restaurant?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
)** Franchisee shall not be in default under this Agreement or any other agreements between Franchisee and HR or its affiliates; Franchisee shall not be in default beyond the applicable cure period under any real estate lease, equipment lease or financing instrument relating to the Franchised Restaurant; Franchisee shall not be in default beyond the applicable cure period with any vendor or supplier to the Franchised Restaurant; and, for the 12 months before the date of Franchisee's notice and the 12 months before the expiration of the Initial Term, Franchisee shall not have been in default beyond the applicable cure period under this Agreement or any other agreements between Franchisee and HR or its affiliates.
(b) Franchisee shall make the capital expenditures required to renovate and modernize the Franchised Restaurant to conform to the interior and exterior designs, decor, color schemes, furnishings and equipment and presentation of the Proprietary Marks consistent with the image of the System for new Hardee's Restaurants at the time Franchisee provides HR the renewal notice, including such structural changes, remodeling, redecoration and modifications to existing improvements as may be necessary to do so.
(c) Franchisee and its employees at the Franchised Restaurant shall be in compliance with HR's then-current training requirements.
(d) Franchisee shall have the right to remain in possession of the Franchised Location, or other premises acceptable to HR, for the Renewal Term and all monetary obligations owed to Franchisee's landlord, if any, must be current.
(e) Franchisee, all individuals who executed this Agreement and all guarantors of Franchisee's obligations shall have executed a general release and a covenant not to sue, in a form satisfactory to HR, of any and all claims against HR and its affiliates and their respective past and present officers, directors, managers, shareholders, members, agents and employees, in their corporate and individual capacities, including, without limitation, claims arising under federal, state and local laws, rules and ordinances, and claims arising out of, or relating to, this Agreement, any other agreements between Franchisee and HR or its affiliates and Franchisee's operation of the Franchised Restaurant, other Hardee's Restaurants operated by Franchisee and all other restaurants operated by Franchisee that are franchised by HR or its affiliates.
(f) As determined by HR in its sole discretion, Franchisee has operated the Franchised Restaurant and all of its other franchised Hardee's Restaurants in accordance with the applicable franchise agreements and with the System Standards (as set forth in the OPM or otherwise and as revised from time to time by HR) and has operated each of its other restaurants that are franchised by HR or its affiliates in accordance with the applicable franchise agreement and system standards.
(3) Within 4 months after HR's receipt of Franchisee's written notice of its desire to renew, HR shall advise Franchisee whether or not Franchisee is entitled to remain a franchisee for the Renewal Term. If HR intends to permit Franchisee to remain a franchisee for the Renewal Term, HR's notice will contain preliminary information regarding actions Franchisee must take to satisfy Sections 2.B.(2)(b) and (c). If HR does not intend to permit Franchisee to remain a franchisee for the Renewal Term, HR's notice shall specify the reasons for non-renewal. If HR chooses not to permit Franchisee to remain a franchisee for the Renewal Term, it shall have the right to unilaterally extend the Initial Term of this Agreement as necessary to comply with any applicable laws.
(4) If Franchisee will remain a franchisee for the Renewal Term, HR shall forward to Franchisee a new franchise agreement for the Renewal Term for Franchisee's signature at least 4 months prior to the expiration of the Initial Term. The form of renewal franchise agreement shall be the form then in general use by HR for Hardee's Restaurants (or, if HR is not then granting franchises for Hardee's Restaurants, that form of agreement as specified by HR) and likely will differ from this Agreement, including, but not limited to, provisions relating to the royalty fee and advertising obligations.
(5) Franchisee shall pay HR a renewal fee in the amount of $5,000 for a Renewal Term of 5 years or $10,000 for a Renewal Term of 10 years.
(6) Franchisee shall execute the renewal franchise agreement for the Renewal Term and return the signed agreement to HR, along with the renewal fee, at least one month prior to the expiration of the Initial Term. Failure by Franchisee to sign the renewal franchise agreement and return it to HR (along with the renewal fee) within this time shall, at HR's option, be deemed an election by Franchisee not to renew the Franchise and shall result in termination of this Agreement and the Franchise granted by this Agreement at the expiration of the Initial Term. Provided Franchisee has timely complied with all of
the conditions set forth in this Section 2.B., HR shall execute the renewal franchise agreement and promptly return a fully-executed copy to Franchisee.
**C.
What This Means (2025 FDD)
Based on the 2025 Hardees Franchise Disclosure Document, a franchisee's ability to renew their franchise agreement is contingent on several factors. Hardees will assess whether the franchisee and their employees are compliant with the then-current training requirements. The franchisee must also have the right to remain in possession of the franchised location, with all monetary obligations to the landlord being current. Furthermore, the franchisee, all individuals who executed the agreement, and all guarantors must execute a general release and a covenant not to sue Hardees, its affiliates, and their respective personnel. Hardees also assesses whether the franchisee has operated the franchised restaurant and all other franchised Hardees restaurants in accordance with the applicable franchise agreements and system standards. Hardees will advise the franchisee within 4 months of receiving their written notice of desire to renew whether they are entitled to remain a franchisee for the renewal term, specifying reasons for non-renewal if applicable.
Regarding the transfer of ownership, the FDD stipulates that the rights and duties within the agreement are personal to the franchisee, and Hardees has entered into the agreement based on the franchisee's business skill, financial capacity, personal character, experience, and ability to operate high-quality foodservice operations. Therefore, the franchisee cannot transfer any interest in the franchise without prior written consent from Hardees, unless otherwise permitted. Any transfer without this consent is considered a material breach of the agreement, potentially leading to termination without an opportunity to cure the breach.
The decision to consent to a transfer is at Hardees' sole discretion and considers numerous factors. These factors include the proposed transferee's experience in high-quality restaurant operations similar to Hardees, their managerial, operational, experience, quality, and character.
While the litigation mentioned in Item 3 is not detailed in the provided excerpts, it is important to note that any ongoing or past legal disputes could influence Hardees' assessment of a franchisee's suitability for renewal or transfer. Prospective franchisees should carefully review Item 3 of the FDD and seek clarification from Hardees regarding any potential impact of litigation on their franchise agreement.