Under what conditions can the collateral assignment of lease be exercised by Aw?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
At our option, we may require that the lease: (i) have a term, with initial and renewal terms, at least equal to the initial term of this Agreement; (ii) be collaterally assigned to us (with the consent of the lessor, if required), by execution of the Collateral Assignment of Lease attached hereto as Exhibit 3 (the assignment may be exercised only upon your default under the lease or this Agreement or the expiration or termination of this Agreement); (iii) provides that the lessor shall give written notice to us (concurrently with you) of any default by you under the lease, and will give us an additional fifteen (15) days to cure any default not cured by you during the cure period and assign the lease to us if defaults are cured by us; (iv) permits the use on the Premises of all signs required by the us for Papa Ray's Pizza Restaurants, subject to applicable local laws, codes and ordinances; (v) provides that on expiration or termination of your Franchise Agreement, we may enter the leased
Source: Item 22 — CONTRACTS (FDD pages 39–40)
What This Means (2025 FDD)
According to Aw's 2025 Franchise Disclosure Document, Aw can exercise the collateral assignment of lease under specific circumstances related to the franchisee's compliance with the lease agreement and the franchise agreement. Aw may require that the lease be collaterally assigned to them, with the lessor's consent if needed. This assignment, as detailed in Exhibit 3, can be exercised if the franchisee defaults under the lease or the Franchise Agreement, or upon the expiration or termination of the Franchise Agreement.
This provision protects Aw's interest in maintaining control over the premises from which a Papa Ray's Pizza Restaurant operates. By having the right to assume the lease, Aw can ensure the continued operation of a restaurant at that location, either under a new franchisee or potentially as a company-owned store. This is a common practice in franchising, as the location of a business is often a critical factor in its success.
The lease agreement must include terms that allow Aw to receive written notice of any default by the franchisee and an additional fifteen days to cure the default if the franchisee fails to do so during the cure period. If Aw cures the default, the lessor must assign the lease to Aw. This ensures that Aw has the opportunity to rectify any issues and maintain control of the location. The lease terms must also permit the use of required signs and restrict the premises to only operating a Papa Ray's Pizza Restaurant, preventing competition within the same shopping center.
Upon termination or expiration of the Franchise Agreement, Aw has the option to take assignment of the lease. If Aw does not exercise this option, the franchisee must modify the premises to remove any association with Aw or the Papa Ray's Pizza System. This includes removing signs and distinctive features, ensuring that the public does not associate the location with the Aw brand if a different business is operated there subsequently. This clause protects Aw's brand identity and prevents potential confusion or dilution of its trademarks.