After a permitted transfer of a Stretch Zone franchise, what obligations does the original franchisee retain?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
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, if a franchisee transfers their 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 means that even after the transfer, the original franchisee is still responsible for ensuring all financial and operational requirements of the franchise are met.
This provision protects Stretch Zone by ensuring that the original franchisee remains committed to the success of the franchise, even after transferring ownership to a business entity. It also provides a level of security for Stretch Zone, as the original franchisee's personal assets are still at risk if the business entity fails to meet its obligations. This is a fairly standard practice in franchising, as franchisors typically want to ensure that franchisees have a strong incentive to operate the business successfully.
For a prospective Stretch Zone franchisee, this means that transferring the franchise to a business entity does not fully release them from their obligations. They should carefully consider the implications of this personal liability and ensure they are prepared to continue meeting the franchise's requirements, even after the transfer. It is also important to note that this clause likely overrides any general understanding that a business entity shields its owners from personal liability, as the franchise agreement specifically stipulates the franchisee's ongoing responsibility.