--- name: franchise-transfer-agreement title: Franchise Transfer Agreement description: Drafts a tripartite U.S. Franchise Transfer Agreement allocating rights, liabilities, and closing mechanics among franchisor, transferor, and transferee. Covers asset/liability allocation, purchase price structure, franchisor approval conditions, FDD compliance, restrictive covenants, and indemnification. Use when drafting franchise transfer agreements, franchise assignment agreements, franchise sale documents, or franchise consent-to- transfer packages during negotiation or closing phases. author: CaseMark author_url: https://github.com/CaseMark/skills/tree/main/skills/legal/franchise-transfer-agreement license: Apache-2.0 version: 0.1.0 execution_mode: open jurisdiction: us practice: commercial language: en tags: [agreement, drafting, transactional] --- # Franchise Transfer Agreement Produces a tripartite agreement for the orderly transfer of franchise rights from an existing franchisee (transferor) to a qualified successor (transferee) with franchisor consent, in compliance with the original franchise agreement and applicable franchise law. --- ## Checkpoint A: Pre-Draft Intake (Mandatory) Gather before drafting unless the user says "use defaults" or "just draft." 1. **Original franchise agreement** — execution date, parties, all amendments and exhibits 2. **FDD** — current version and version in effect at original grant 3. **Transfer correspondence** — franchisor's preliminary approval or qualification requirements 4. **Financial statements** — transferor (3-5 years) and transferee (qualification evidence) 5. **Premises lease** — assignment provisions, landlord consent or SNDA requirements 6. **Asset inventory** — equipment, vehicles, IP, POS/tech systems, signage 7. **Compliance history** — royalty payment records, default/cure history, outstanding disputes 8. **Transaction structure** — asset sale vs. equity sale of franchise-owning entity 9. **Jurisdiction** — franchise location state; franchisor home state --- ## Step 1: Liability & Asset Allocation ### Assets Transferred | Category | Inclusions | Common Exclusions | |---|---|---| | Tangible | Equipment, fixtures, inventory, vehicles, POS/IT, signage | Transferor's personal property | | Intangible | Franchise license, phone numbers, domains, social media, customer lists, goodwill | Corporate records unrelated to franchise ops | | Excluded | List specifically in schedule | Assets subject to separate disposition | ### Liability Split | Party | Assumes | |---|---| | Transferee | All franchise obligations from closing forward (royalties, ad fund, standards, lease) | | Transferor | Pre-closing vendor invoices, tax liabilities, employee/warranty claims, pending litigation | | Straddling | Pre-closing incidents reported post-closing stay with transferor; partial services prorated | --- ## Step 2: Purchase Price & Financial Terms - Total consideration with allocation by category (tangible property, covenant not to compete, goodwill, franchise rights) - Payment schedule: deposit at execution, balance at closing, seller-financing/earnout if applicable - **Franchisor transfer fee**: exact amount or calculation per original agreement; allocate between parties; state timing - Working capital: minimum post-closing cash, A/R and A/P treatment, inventory adjustment from pre-closing physical count - Tax: allocation must be consistent across both parties' IRS Form 8594 filings — flag for accountant review --- ## Step 3: Conditions Precedent | Condition | Key Details | |---|---| | Franchisor written approval | Complete application (financials, background, experience, conflict check); franchisor evaluates per franchise agreement standard | | Training completion | Franchisor's program (1-6 weeks); may include testing or supervised operation | | New franchise agreement | Transferee signs franchisor's then-current form (may differ: higher royalties, shorter renewal) | | Lease assignment or new lease | Landlord consent; address whether transferor released from guaranty | | Default cure | Transferor cures all defaults; location brought to current brand standards at transferor's cost | | Lender consent | If assets encumbered by security interests | | Transferee due diligence | Access to location, financial records, employees, system inspection | --- ## Step 4: Representations & Warranties **Transferor reps:** - Financial statements accurate, consistent basis, no undisclosed liabilities - Compliance with all franchise obligations (royalties, ad fund, standards, insurance) - Assets in good operating condition; clear title free of liens except as scheduled - No material adverse change since most recent financials - No pending/threatened litigation or regulatory proceedings **Transferee reps:** - Financial capacity to close and fund operations - Receipt and review of FDD, new franchise agreement, and assumed contracts - Opportunity to consult legal and financial advisors - Qualifications and experience; full-time devotion if required - Acknowledgment franchisor makes no financial performance guarantees --- ## Step 5: Restrictive Covenants | Covenant | Scope | Duration | Geography | |---|---|---|---| | Non-compete | No direct/indirect ownership or operation of competing business | 2-3 years | Territory + reasonable buffer | | Non-solicitation (employees) | No soliciting or hiring franchise employees | 1-2 years | System-wide | | Non-solicitation (customers) | No soliciting customers or interfering with vendor relationships | 1-2 years | Location-specific | | Confidentiality | Ops manuals, supplier arrangements, trade secrets | Indefinite or max by law | N/A | - Extend to transferor's affiliates, family, controlled entities - Carve out: passive ownership of publicly traded securities below threshold - Require return/destruction of all confidential materials at closing - [VERIFY: non-compete enforceability in applicable state — CA and others void post-sale non-competes] --- ## Step 6: Closing Mechanics ### Deliverables | Party | Deliverables | |---|---| | Transferor | Bills of sale; assignment/assumption agreements (contracts, leases); IP assignment (domains, social media, phones); vehicle titles; tax clearance certificates; UCC-3 terminations; lien releases; closing certificate | | Transferee | Purchase price (wire/certified funds); executed assumption agreements; executed new franchise agreement; evidence of insurance (franchisor and transferor as additional insureds); personal guarantees if required | | Franchisor | Written consent to transfer; acknowledgment of transferee as new franchisee; confirmation transferor's obligations satisfied | ### Adjustments & Transition - **Prorations**: rent, utilities, property taxes, insurance, prepaid ad contributions - **Inventory**: physical count pre-closing; price adjusted to cost basis - **Risk of loss**: transferor bears casualty risk through closing; transferee may terminate if material damage - **Transition assistance** (30-90 days): transferor provides operational training, customer/supplier introductions, cooperation on license/permit transfers; specify if compensated separately or included in price --- ## Step 7: Indemnification | Indemnitor | Covers | |---|---| | Transferor | Pre-closing liabilities; rep/warranty breaches; excluded liabilities; pre-closing third-party claims | | Transferee | Post-closing liabilities; assumed obligations; rep/warranty breaches; post-closing third-party claims | | Parameter | Terms | |---|---| | Notice | Prompt written notice with description, estimated amount, supporting docs | | Defense | Indemnifying party controls; consent required for non-monetary settlements | | Survival | General reps: 1 year; tax and title: 3 years | | Basket | 1-3% of purchase price (specify deductible vs. threshold) | | Cap | 25-50% of purchase price; excludes fraud, willful misconduct, fundamental reps | --- ## Step 8: Dispute Resolution & General Provisions - **Governing law**: align with original franchise agreement or franchisor's home state; note franchise relationship law overrides [VERIFY] - **Dispute resolution**: (1) executive negotiation, (2) mediation (30-60 days, shared costs), (3) binding arbitration or exclusive venue litigation - **Prevailing party** attorneys' fees - Integration clause; written amendment only; assignment restricted; notices to all three parties - Signature blocks for all three parties with authority documentation --- ## Checkpoint B: Post-Draft Alignment (Mandatory) After delivering the draft, ask: 1. Does the asset/liability allocation match the commercial deal terms? 2. Is the transaction structured as asset sale or equity sale — and have consent provisions been adjusted accordingly? 3. Are restrictive covenant durations and geography appropriate for the applicable state? 4. Should I produce a shorter closing checklist or summary for the parties? --- ## Quality Audit - All 8 steps addressed in the draft - Asset and liability allocation tables reflected accurately in operative sections - Purchase price allocation consistent throughout (matches Form 8594 categories) - Conditions precedent complete and specific to the transaction - Restrictive covenants tailored to applicable state law - Closing deliverables listed for all three parties - Indemnification caps, baskets, and survival periods specified - All [BRACKETED] placeholders clearly marked for attorney completion - No warranty that franchisor will approve — approval is franchisor's discretion - No invented legal standards or enforceability claims --- ## Guidelines - **Franchise relationship laws**: CA, IL, MD, MI, MN, NJ, NY, WA, WI and others impose transfer approval standards and good cause restrictions that override contract terms [VERIFY state-specific statutes] - **FTC Franchise Rule**: Confirm FDD disclosure obligations satisfied for transferee; re-disclosure may be required [VERIFY] - **Lease assignment**: Confirm whether lease permits assignment or requires new lease; address guaranty release explicitly - **Equity vs. asset sale**: Equity transfers may require different consent provisions and may not trigger all transfer fee obligations — confirm structure early - **Do not** warrant franchisor will approve the transfer - Mark all uncertain enforceability claims with [VERIFY] - Output requires attorney review before execution **Required disclaimer on every output:** > THIS AGREEMENT IS A DRAFTING AID AND REQUIRES REVIEW BY QUALIFIED LEGAL COUNSEL BEFORE USE. IT DOES NOT CONSTITUTE LEGAL ADVICE.