In the world of franchising often be franchise outlet or franchisee will wish to sell their rights under the franchise agreement to another party. Since this is a common occurrence amongst franchisees it makes sense to have a clearly defined franchise agreement, which addresses potential or problematic transfers. A franchisor may wish to have a clause in the franchise agreement, which actually prohibits certain types of franchise transfers. And there might be a number of reasons for this. Below is a clause that I put into our franchise agreements all prohibited transfers;
5.2.6 Prohibited Transfers
For purposes of this Section 5.2, without limiting the generality of the foregoing, Franchisor?s withholding of consent will be considered reasonable if the proposed sale, assignment, transfer or conveyance is to an individual, company, or business entity that Franchisor deems in Franchisor?s sole opinion to be a competitor of Franchisors or a competitor of any affiliate of Franchisors or a competitor of any sister or co-brand company of Franchisors or a competitor of a vendor of Franchisors, another franchisor, another sub-franchisor, master franchise of another system or a Franchisee of another system which has an affiliate company that is a competitor of Franchisors. Any purported assignment without the prior written consent of Franchisor will be null and void and will constitute a material default under this Agreement.
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A franchise or would be well advised to have a similar clause in their franchise agreement. And I recommend that they consult with an experienced and knowledgeable franchisee an attorney who is a specialist. And explain to that franchise attorney their entire business model so that indeed they can come up with the best clause in the franchise agreement to address this issue. I hope you will consider this in 2006.
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