Under what conditions is it considered reasonable for Management Recruiters to withhold approval of a proposed franchise transfer?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
If Franchisor elects not to exercise its right of first refusal, Franchisor's approval of a proposed transfer shall not be unreasonably withheld. However, without limitation of the foregoing, imposition of any or all of the following conditions precedent to Franchisor's approval shall be deemed to be reasonable:
the proposed assignee(s) shall expressly assume in writing, for Franchisor's benefit, all Franchisee's obligations under this Agreement;
the proposed assignee(s) shall have completed the training program and additional evaluation to Franchisor's sole subjective satisfaction, as described in Section 8;
as of the date of any such transfer, Franchisee shall have fully satisfied all Franchisee's obligations, including accrued money obligations, to Franchisor and Franchisor's Affiliates and assignees under this Agreement and any other agreement, arrangement or understanding;
Franchisor shall require the proposed assignee(s), including all of the principal officers, shareholders, franchisees, partners, and directors of the proposed assignees(s), to jointly and severally execute Franchisor's standard form Franchise Agreement, including any personal guarantees thereof, then being offered to prospective franchisees of Franchisor, except that no initial Franchise Fee shall be required from the proposed assignee and the term of the Agreement shall be modified to equal the remaining term under this Agreement;
Franchisee shall pay Franchisor a transfer fee of Five Thousand Dollars ($5,000.00), which is deemed to be reasonably required to cover Franchisor's expenses relating to such transfer.
13.6.3.
Covenants Not to Compete Unaffected.
No sale, assignment, transfer, conveyance, encumbrance, or gift of any interest in this Agreement, or in the Franchise Business, shall relieve Franchisee, and as applicable, its Principals, shareholders, or partners participating in any transfer, of the obligations of the covenants not to compete contained in Section 17 of this Agreement.
Source: Item 23 — RECEIPTS (FDD pages 67–327)
What This Means (2024 FDD)
According to Management Recruiters' 2024 Franchise Disclosure Document, Management Recruiters' approval of a proposed franchise transfer will not be unreasonably withheld if Management Recruiters elects not to exercise its right of first refusal. However, it is deemed reasonable for Management Recruiters to impose certain conditions before approving a transfer.
These conditions include the proposed assignee expressly assuming all of the franchisee's obligations in writing for Management Recruiters' benefit. The proposed assignee must also complete the training program and additional evaluation to Management Recruiters' satisfaction. Additionally, as of the transfer date, the franchisee must have fulfilled all obligations, including monetary obligations, to Management Recruiters and its affiliates. The proposed assignee must also execute Management Recruiters' standard form Franchise Agreement, including any personal guarantees, then offered to prospective franchisees, although no initial franchise fee will be required, and the agreement term will equal the remaining term under the original agreement.
Furthermore, the franchisee is required to pay Management Recruiters a transfer fee of $5,000, which is considered reasonably necessary to cover Management Recruiters' expenses related to the transfer. The sale, assignment, transfer, or conveyance of any interest in the Franchise Agreement or the franchise business does not relieve the franchisee of their obligations regarding covenants not to compete as outlined in Section 17 of the agreement.