Under the Stretch Zone Area Development Agreement, what constitutes a 'transfer' by the area developer?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
| Provision | Section in Area Development Agreement | Summary |
|---|---|---|
| termination or expiration of the Area Development Agreement, all your Area Development Rights cease rights cease. We are then free to open Company Owned Businesses or franchise Stretch Zone Franchises to others within your former Development Area but outside any Limited Protected Territories granted to you under Franchise Agreements for Franchise Businesses you are currently operating or are under construction, provided you are not in otherwise in default under any Franchise Agreement. | ||
| h. "Cause" defined – non-curable defaults | Section 7.2 | We may terminate the Area Development Agreement by giving you written notice of termination if we terminate any Franchise Agreement between the parties due to your default, after we have given you written notice of default if notice is required, and afforded you an opportunity to cure if you have a right to cure. |
| i. Your obligations on termination/ nonrenewal | Sections 4.1 and 7.4 | Upon termination or expiration of the Area Development Agreement, all your Area Development Rights cease rights cease. If we terminate the Area Development Agreement for your failure to meet the Development Schedule, you will retain all rights under the Franchise Agreements for the Franchise Businesses you have under lease, construction or in operation at that time, as long as you are not otherwise in default under those Franchise Agreements. You must comply with your post-termination and post-expiration obligations under the Franchise Agreements and those obligations that survive the termination or expiration of the Franchise Agreements including the obligations of indemnification, confidentiality and non-competition. |
| j. Assignment of contract by us | Section 5.1 | We have the absolute right to transfer, assign or delegate all or any part of our rights or obligations under the Area Development Agreement to any person without your consent or approval. |
| k. "Transfer" by you defined | Section 5.2 | Transfer means any sale, assignment, transfer, conveyance or gift of any direct or indirect interest in your Area Development Agreement. A transfer of less than 50% of the equity interests in Business Entity that signed the Area Development Agreement and a transfer to any other original owners of the Area Development Agreement is not considered a transfer. |
Source: Item 17 — ITEM -17 RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 65–73)
What This Means (2025 FDD)
According to Stretch Zone's 2025 Franchise Disclosure Document, a 'transfer' by the area developer encompasses a broad range of transactions related to the Area Development Agreement. Specifically, it includes any sale, assignment, transfer, conveyance, or gift of any direct or indirect interest in the Area Development Agreement. This definition ensures that any shift in ownership or control is considered a transfer, requiring franchisor approval.
However, the definition provides some exceptions. A transfer of less than 50% of the equity interests in the business entity that originally signed the Area Development Agreement is not considered a transfer. Additionally, a transfer to any other original owners of the Area Development Agreement is also excluded from being classified as a transfer. These exceptions offer some flexibility for internal restructuring or changes in ownership among the original parties without requiring franchisor consent.
It is important to note that any transfer requires the prior written approval of Stretch Zone. This provision allows Stretch Zone to maintain control over who becomes an area developer and ensures that any new party meets their standards and qualifications. This is a common practice in franchising, as the franchisor needs to protect the brand and ensure consistent operation across all territories. Prospective area developers should be aware of these transfer restrictions and approval requirements before entering into an Area Development Agreement with Stretch Zone.