If an Alloy franchisee defaults on a payment, is Alloy required to make the payment on their behalf?
Alloy Franchise · 2025 FDDAnswer from 2025 FDD Document
If Franchisor elects to assume the Lease under paragraph 2, or unilaterally assumes the Lease as provided for in paragraphs 3 or 4, Landlord and Tenant agree that:
- (a) Tenant will remain liable for the responsibilities and obligations, including amounts owed to Landlord, prior to the date of assignment and assumption.
Further, Tenant shall be and remain liable to Landlord for all of its obligations under the Lease, notwithstanding any assignment or assumption of the Lease by Franchisor.
Franchisor shall be entitled to recover from Tenant all amounts it pays to Landlord to cure Tenant's defaults under the Lease, including interest and reasonable collection costs.
- (b) Franchisor, upon taking possession of the Premises, shall cure any default specified by Landlord within the timeframes noted herein and shall execute and deliver to Landlord its assumption of Tenant's rights and obligations under the Lease.
Franchisor shall pay, perform and be bound by all the duties and obligations of the Lease applicable to Tenant.
Source: Item 23 — RECEIPTS (FDD pages 69–245)
What This Means (2025 FDD)
Based on the 2025 FDD, Alloy is not required to make payments on behalf of a franchisee who defaults, but Alloy may elect to assume the lease under certain conditions.
The FDD states that if Alloy elects to assume the lease, the franchisee remains liable for obligations, including amounts owed to the landlord, prior to the date of assignment and assumption. Alloy is entitled to recover from the franchisee all amounts it pays to the landlord to cure the franchisee's defaults under the lease, including interest and reasonable collection costs. Upon taking possession of the premises, Alloy must cure any default specified by the landlord within the noted timeframes and execute and deliver its assumption of the franchisee's rights and obligations under the lease.
This means that while Alloy isn't automatically responsible for a franchisee's debts, it might step in to assume the lease of a location. However, the original franchisee remains liable for any outstanding debts incurred before Alloy took over the lease. Furthermore, Alloy has the right to seek reimbursement from the franchisee for any costs it incurs to resolve the franchisee's defaults.
This clause protects Alloy from being burdened with the franchisee's prior financial issues while also giving Alloy a means to maintain control over the location and brand. For a prospective franchisee, this highlights the importance of meeting all financial obligations to avoid default, as Alloy has the right to recover any payments made on the franchisee's behalf to cure defaults.