Does the Stretch Zone agreement relieve any third person of their obligations or liabilities to any party in the agreement?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee is a Business Entity, to another original equity owners but such transfer does not release the transferring Franchise Owner from her/his obligations under any Guaranty that s/he previously signed.
You understand that, if you transfer this Agreement to a Business Entity, you remain personally liable for all the monetary and non-monetary obligations under this Agreement arising before or after the transfer through the end of the Initial Term and any Renewal Term.
Source: Item 8 — Receipts. Any sale made must be in compliance with § 683(8) of the Franchise Sale Act (N.Y. Gen. Bus. L. § 680 et seq.), which describes the time period a Franchise Disclosure Document (offering prospectus) must be provided to a prospective franchisee before a sale may be made. New York law requires a franchisor to provide the Franchise Disclosure Document at the earliest of the first personal meeting or ten (10) business days before the execution of the franchise or other agreement or the payment of any consideration that relates to the franchise relationship. (FDD pages 99–263)
What This Means (2025 FDD)
According to the 2025 Stretch Zone Franchise Disclosure Document, the franchise agreement does not release a transferring franchise owner from their obligations under any previously signed guaranty, even when transferring the agreement to a business entity. This means that if a franchisee initially signed a personal guarantee to ensure the financial or contractual obligations of the franchise are met, transferring the franchise to a corporation or LLC they own does not eliminate that personal guarantee.
Specifically, if a Stretch Zone franchisee transfers the agreement to a business entity in which they own a majority stake, they remain personally liable for all monetary and non-monetary obligations under the agreement. This liability extends both before and after the transfer, throughout the initial term and any renewal terms of the franchise agreement.
This provision protects Stretch Zone by ensuring that the original franchisee remains accountable even after transferring ownership to a business entity. It is a common practice in franchising to maintain personal guarantees to provide an additional layer of security for the franchisor. The FDD specifies that all certificates representing equity interests must bear a legend indicating that these interests are subject to the terms of the Franchise Agreement, including transfer restrictions, further reinforcing this point.