Under what conditions can Management Recruiters refuse to permit a transfer of ownership of a franchise in Michigan?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
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 will include, but is not limited to:
- a.
The failure of the proposed member to meet the franchisor's then current reasonable qualifications or standards.
- b.
The fact that the proposed transferee is a competitor of the franchisor or subfranchisor.
- c. The unwillingness of the proposed transferee to agree in writing to comply with all lawful obligations.
- d. The failure of the member 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 23 — RECEIPTS (FDD pages 67–327)
What This Means (2024 FDD)
According to the 2024 Management Recruiters Franchise Disclosure Document, an addendum is required by the state of Michigan that addresses the franchisor's ability to refuse a transfer of ownership. Management Recruiters can refuse a transfer of ownership of a franchise in Michigan for good cause. This does not prevent Management Recruiters from exercising a right of first refusal to purchase the franchise.
Good cause includes several specific conditions. Management Recruiters can refuse a transfer if the proposed new franchisee does not meet the franchisor's current qualifications or standards. A transfer can also be denied if the proposed franchisee is a competitor of Management Recruiters or its subfranchisor. Furthermore, Management Recruiters can block a transfer if the proposed franchisee is unwilling to agree in writing to comply with all lawful obligations.
Finally, Management Recruiters can refuse a transfer if either the current franchisee or the proposed new franchisee has not paid all sums owed to Management Recruiters or has failed to correct any existing default in the Franchise Agreement at the time of the proposed transfer. These conditions provide Management Recruiters with specific and reasonable grounds to prevent franchise transfers that could negatively impact the brand or its financial interests.