What are the potential risks associated with Beard Papas' lease commitments?
Beard_Papas Franchise · 2025 FDDAnswer from 2025 FDD Document
tutes Franchisor's then current Franchise Agreement shall be determined by Franchisor, in Franchisor's exclusive discretion and that, among other things, the Franchise Agreement may be modified from time to time by Franchisor and that reasonable modification and amendments to the Franchise Agreement will not alter Franchisee's obligations under this Agreement.
5.4 COMPLIANCE WITH FRANCHISE AGREEMENTS
Franchisee will operate the Development Shops and all other Beard Papa's Shops in strict compliance with the terms and conditions of each respective Franchise Agreement.
5.5 SITE SELECTION
Franchisee will be solely responsible for selecting the site(s) for the Franchisee's Shop Locations. In accordance with the terms and conditions of each respective Franchise Agreement, Franchisee must obtain Franchisor's prior written approval as to each potential Shop Location selected by Franchisee. Franchisee will retain an experienced commercial real estate broker or salesperson who has sufficient experience in locating Shop sites to locate, acquire, purchase or lease the site for the Franchisee's Development Shops. Accordingly, no provision of this Agreement will be construed or interpreted to impose any obligation upon Franchisor to locate a site for the Development Shops, to assist Franchisee in the selection of a suitable site for the Development Shops, or to provide any assistance to the Franchisee in the purchase or lease of the site for the Development Shops.
5.6 SITE SELECTION CRITERIA
Franchisee will not lease, purchase or otherwise acquire a Shop Locations for the Development Shops until such information as Franchisor may require regarding the proposed site has been provided to Franchisor by Franchisee and has been approved by Franchisor. Information requested by Franchisor may include, without limitation, information regarding the proposed Shop Location as to accessibility, visibility, potential traffic flows, lease terms and other demographic information. Franchisee shall not enter into any lease or purchase agreement with respect to any proposed Shop Location until Franchisor has approved the site.
SECTION 6 TRANSFER OF INTEREST
6.1 BY FRANCHISOR
At all times, Franchisor possesses and maintains the sole and absolute right to transfer and/or assign Franchisor's rights and obligations under this Agreement, in whole and/or in part (for any purpose and in any form of transaction as may be designated and/or elected by Franchisor, in Franchisor's sole discretion) to any person, entity, Corporate Entity and/or third party without the consent of Franchisee and without the approval of Franchisee.
6.2 BY FRANCHISEE
Franchisee shall not Transfer and/or assign this Agreement without the express written consent of Franchisor which Franchisor may withhold in Franchisor's sole discretion and Franchisor's Reasonable Business Judgment. If Franchisee is a Corporate Entity the Owners of Franchisee shall not Transfer their ownership and/or equity interests in Franchisee without the express written consent of Franchisor which Franchisor may withhold in Franchisor's sole discretion and Franchisor's Reasonable Business Judgment. Any Transfer and/or assignment in violation of the foregoing shall constitute a material default of this Agreement and shall result in the immediate and automatic termination of this Agreement.
SECTION 7 ENFORCEMENT AND CONSTRUCTION
7.1 SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS
- (1) Except as expressly provided to the contrary in this Agreement, each term and provision of this Agreement shall be interpreted or otherwise construed to be independent of each other and severable. Although each term and condition of this Agreement are considered by the parties to be reasonable and intended to be enforceable, if any such term and condition of this Agreement is found by a court of competent jurisdiction, agency, or other governmental agency to be unenforceable as written or otherwise, then such term and condition shall be modified, rewritten, interpreted, or "blue-lined" to include as much of its nature and scope as will render it enforceable. If such term and condition cannot be so modified, rewritten, interpreted, or "blue-lined" in any respect, then it will not be given effect and severed from this Agreement, and the remainder of this Agreement shall be interpreted, construed and enforced as if such term and condition was not included in this Agreement.
Source: Item 23 — RECEIPTS (FDD pages 58–275)
What This Means (2025 FDD)
According to the 2025 Beard Papas FDD, franchisees bear significant responsibility for site selection and lease negotiation, which introduces several potential risks. The franchisee is solely responsible for selecting the site for their shop and must obtain the Franchisor's written approval. The franchisee must also retain an experienced commercial real estate broker to locate, acquire, purchase, or lease the site. This means the franchisee carries the risk of choosing a poor location, negotiating unfavorable lease terms, or failing to obtain Franchisor approval, any of which could negatively impact the business.
Beard Papas requires that franchisees provide information regarding the proposed site, including accessibility, visibility, potential traffic flows, and lease terms, for approval. The Franchisor retains significant control over lease agreements through a Lease Agreement Rider, which supplements and amends the lease, and its terms prevail in case of conflict. The franchisee cannot transfer or assign their lease without Beard Papas' prior written consent. This gives Beard Papas the power to maintain control over the location and operation of its franchises, but it also means the franchisee's flexibility is limited.
Furthermore, Beard Papas has the option to assume or renew the lease under certain conditions, such as termination or expiration of the Franchise Agreement, or the franchisee's default under the lease. In such cases, Beard Papas can sublease the premises to another franchisee. This clause protects Beard Papas' interests in maintaining a presence in a particular location, but it also means the franchisee could lose control of their location if they fail to meet the terms of the Franchise Agreement or lease. For the years ended December 31, 2023 and 2022, the company incurred rent expenses under noncancelable lease agreements of approximately $168,000 and $70,000, respectively.
Overall, the FDD indicates that franchisees face risks related to site selection, lease negotiation, and potential loss of their location due to the franchisor's control over the lease agreement. Prospective franchisees should carefully consider these factors and seek professional advice before entering into a franchise agreement with Beard Papas.