What constitutes a 'cross-default' in the Bananas Smoothies Frozen Yogurt agreement?
Bananas_Smoothies_Frozen_Yogurt Franchise · 2025 FDDAnswer from 2025 FDD Document
- 9.2 Cross-Default. Any default or breach by Developer, Developer's affiliates and/or any guarantor of Developer's of any other agreement between Franchisor or Franchisor's affiliates and Developer and/or such other parties will be deemed a default under this Agreement, and any default or breach of this Agreement by Developer and/or such other parties will be deemed a default or breach under any and all such other agreements between Franchisor or Franchisor's affiliates and Developer, Developer's affiliates and/or any guarantor of Developer's. If the nature of the default under any other agreement would have permitted Franchisor (or our affiliate) to terminate this Agreement if the default had occurred under this Agreement, then Franchisor will have the right to terminate all such other agreements in the same manner provided for in this Agreement for termination hereof. Developer's "affiliates" means any persons or entities controlling, controlled by or under common control with Developer.
Source: Item 23 — RECEIPT (FDD pages 58–231)
What This Means (2025 FDD)
According to the 2025 Bananas Smoothies Frozen Yogurt FDD, a 'cross-default' occurs when a franchisee, their affiliates, or any guarantor breaches any agreement with Bananas Smoothies Frozen Yogurt or its affiliates. This means that if a franchisee defaults on one agreement, it's considered a default across all agreements they have with the franchisor.
This provision works both ways: a default under any other agreement the franchisee has with Bananas Smoothies Frozen Yogurt is considered a default under the Area Development Agreement, and vice versa. Furthermore, if the default under another agreement would have allowed Bananas Smoothies Frozen Yogurt to terminate that agreement, then Bananas Smoothies Frozen Yogurt has the right to terminate all other agreements as well.
For a prospective Bananas Smoothies Frozen Yogurt franchisee, this clause has significant implications. It creates a web of interconnected obligations, where a misstep in one area can trigger consequences across the board. This could include defaults on franchise agreements, loan agreements, or any other contracts with the franchisor or its affiliates. Franchisees need to be meticulous in complying with all agreements to avoid triggering a cross-default.
The definition of 'affiliates' is also important. According to the FDD, it includes any persons or entities controlling, controlled by, or under common control with the developer. This means that the actions of related businesses or individuals could also trigger a cross-default, even if those parties are not directly involved in the Bananas Smoothies Frozen Yogurt franchise. Franchisees should carefully consider these implications and ensure that all related parties are aware of and compliant with the terms of all relevant agreements.