What is the dependency between the Aerus Franchise Agreement and the Consignment Agreement regarding events of default?
Aerus Franchise · 2025 FDDAnswer from 2025 FDD Document
In addition, the following shall be "Events of Default" under this Agreement: (a) Consignee shall default under this Agreement or fail to perform or observe any of the agreements or covenants set forth in this Agreement or fail to pay when due any invoice or invoices covering products subject to this Agreement; (b) Consignee shall be declared to be in default under any material contract, agreement, or instrument to which Consignee is a party with Company or Aerus Franchising, or either of their affiliates or assigns, including without limitation the Franchise Agreement and documents incidental or related thereto, and such default shall continue beyond any applicable cure period; (c) Consignee shall sell, remove, or attempt to sell, remove, or assign Collateral not in the ordinary course of business; (d) any creditor of Consignee shall obtain possession of any Collateral by means including, without limitation, levy, distraint, replevin or self-help.
Source: Item 23 — Receipts (FDD pages 74–305)
What This Means (2025 FDD)
According to Aerus's 2025 Franchise Disclosure Document, the Consignment Agreement has specific provisions that link it to the Franchise Agreement regarding events of default. Specifically, a franchisee being declared in default under the Franchise Agreement can trigger a default under the Consignment Agreement. This creates a direct dependency between the two agreements.
This dependency means that if an Aerus franchisee fails to meet their obligations under the Franchise Agreement, such as failing to pay royalties or not adhering to operational standards, it can lead to a default not only in the Franchise Agreement but also in the Consignment Agreement. This could then allow Aerus to exercise its rights under the Consignment Agreement, such as repossessing consigned products used for the Aerus business.
This interrelation is important for a prospective franchisee to understand. Defaulting on the Franchise Agreement can have cascading effects, impacting their ability to operate the business and potentially leading to the loss of consigned inventory. Franchisees should, therefore, carefully review both agreements to fully understand their obligations and the potential consequences of non-compliance. It is also important to note that the Consignment Agreement is a security measure for Aerus to protect its consigned products, ensuring their rights are prioritized over other creditors of the franchisee.