What constitutes an attempt by a Spray Net franchisee to sell, transfer, encumber or dispose of any interest in the franchise in violation of Section 13?
Spray_Net Franchise · 2025 FDDAnswer from 2025 FDD Document
- C. Ownership. In addition to those acts described in Section 13(A), a transfer or assignment requiring Franchisor's prior written consent shall be deemed to occur: (i) if Franchisee is a corporation, upon any assignment, sale, pledge or transfer of any fractional portion of Franchisee's ownership shares/stock or any increase in the number of outstanding shares/stock of Franchisee's ownership/membership units that results in a change of ownership; (ii) if Franchisee is a partnership, upon the assignment, sale, pledge or transfer of any fractional partnership ownership interest; or (iii) if Franchisee is a limited liability company, upon the assignment, sale, pledge or transfer of any interest in the limited liability company.
Any new partner, shareholder, or member or manager owning having an ownership interest in the surviving entity after the proposed transfer will be required to personally guarantee Franchisee's obligations under this Agreement.
A transfer under (i) and (iii) above shall not be subject to Franchisor's right of first refusal as set forth in Section 13(D) so long as there is no change in control (ownership or otherwise) with respect to Franchisee.
- D. Right of First Refusal. If (a) Franchisee proposes to transfer any of its interest in this Agreement or the Franchised Business or any interest in its lease for the Premises, or (b) Franchisee's owners propose to transfer any interest in Franchisee if Franchisee is an entity (other than a corporation or limited liability company as set forth in Section 13(C) hereof or in the event of Franchisee's death/disability as set forth in Section 13(B)), then Franchisee shall first offer to sell such interest to Franchisor on the same terms and conditions as offered by such third party.
Franchisee shall obtain from the third party and provide Franchisor a statement in writing, signed by the third party and Franchisee, of the terms of the offer ("Letter of Intent").
Source: Item 23 — RECEIPTS (FDD pages 75–219)
What This Means (2025 FDD)
According to Spray Net's 2025 Franchise Disclosure Document, a transfer or assignment requiring the franchisor's prior written consent is deemed to occur under specific conditions related to changes in ownership structure. If the Spray Net franchisee is a corporation, any assignment, sale, pledge, or transfer of any fraction of ownership shares or stock, or any increase in the number of outstanding shares that results in a change of ownership, is considered a transfer requiring consent. Similarly, if the franchisee is a partnership, the assignment, sale, pledge, or transfer of any fractional partnership ownership interest triggers this requirement. For a limited liability company, it's the assignment, sale, pledge, or transfer of any interest in the LLC.
These stipulations mean that a Spray Net franchisee cannot alter the ownership structure of their business without first obtaining approval from Spray Net. This is designed to ensure that any new owners or partners meet the franchisor's standards and are capable of upholding the franchise agreement. The FDD specifies that any new partner, shareholder, member, or manager with an ownership interest in the surviving entity after the proposed transfer must personally guarantee the franchisee's obligations under the agreement, providing further protection for Spray Net.
However, the document also notes an exception: a transfer under the corporate or LLC structures mentioned above is not subject to Spray Net's right of first refusal, provided there is no change in control (ownership or otherwise) with respect to the franchisee. This suggests that minor ownership adjustments within a corporation or LLC may be permitted without triggering the franchisor's right to buy the franchise back, as long as the original franchisee retains overall control. This exception offers some flexibility to the franchisee while still safeguarding the franchisor's interests in maintaining consistent management and operational standards across the Spray Net franchise system.
If a Spray Net franchisee plans to transfer any interest in the franchise agreement, the franchised business, or any interest in the lease for the premises, they must first offer to sell such interest to Spray Net on the same terms and conditions as offered by the third party. The franchisee is required to obtain a written statement (Letter of Intent), signed by both the third party and the franchisee, outlining the terms of the offer and provide it to Spray Net. This gives Spray Net the first opportunity to purchase the franchise interest before it is sold to an outside party.