If an Itan franchisee is in default, can they transfer the franchise?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
- (g) A provision which permits a franchisor to refuse to permit a transfer of ownership of a franchise, except for good cause.
This subdivision does not prevent a franchisor from exercising a right of first refusal to purchase the franchise.
Good cause shall include, but is not limited to:
(v) The failure of the proposed transferee to meet the franchisor's then current reasonable qualifications or standards.
(vi) The fact that the proposed transferee is a competitor of the franchisor or subfranchisor.
(vii) The unwillingness of the proposed transferee to agree in writing to comply with all lawful obligations.
(viii) The failure of the franchisee or proposed transferee to pay any sums owing to the franchisor or to cure any default in the franchise agreement existing at the time of the proposed transfer.
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION (FDD pages 36–39)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, a franchisee's ability to transfer the franchise when in default is restricted. Specifically, the FDD states that a franchisor can refuse a transfer if the franchisee has failed to cure any default in the franchise agreement at the time of the proposed transfer. This provision protects Itan by ensuring that franchisees meet their obligations before transferring ownership.
This means that if an Itan franchisee is in default, such as failing to pay royalties or not adhering to operational standards, Itan has the right to block the transfer of the franchise to a new owner. This prevents the transfer of a troubled business to someone else without resolving the existing issues. The prospective transferee must also meet Itan's current qualifications and standards, and agree in writing to comply with all lawful obligations.
However, this restriction does not allow Itan to unfairly prevent transfers. The FDD also mentions that a franchisor can't refuse a transfer of ownership of a franchise, except for good cause. Good cause includes the failure to cure any default in the franchise agreement existing at the time of the proposed transfer, the failure of the proposed transferee to meet Itan's then current reasonable qualifications or standards or the unwillingness of the proposed transferee to agree in writing to comply with all lawful obligations. This implies that if the franchisee cures the default and the proposed transferee meets the necessary qualifications and agrees to comply with the obligations, Itan cannot unreasonably withhold the transfer. Itan also retains the right of first refusal to purchase the franchise.
Therefore, while an Itan franchisee in default faces restrictions on transferring their franchise, they may be able to proceed with a transfer if they address the default and the proposed transferee meets Itan's requirements. A prospective franchisee should carefully review the conditions under which a transfer may be denied and discuss any concerns with Itan before investing.