What is the purpose of the Principals' Undertaking in the Belocal agreement?
Belocal Franchise · 2025 FDDAnswer from 2025 FDD Document
In consideration of, and as an inducement to, the execution of that certain Franchise Agreement, and any revisions, modifications, and amendments thereto, (collectively, "Agreement") by and between N2 Franchising, Inc. ("Franchisor"), and [Franchisee], ("Franchisee"), and dated [Insert Date of Agreement]), the undersigned (each, a "Principal") agree(s) as follows:
Each Principal acknowledges and agrees as follows:
(a) The undersigned is a "Principal," as defined in the Agreement, and has read the terms and conditions of the Agreement and acknowledges that the execution of this Principal's Undertaking is in partial consideration for, and a condition to, Franchisor entering into the Agreement with Franchisee and that Franchisor would not have entered into the Agreement without the execution of this Principal's Undertaking; and
(b) Without limiting any of Franchisee's obligations under the Agreement, Principal (i) makes all of the covenants, representations, warranties, and agreements set forth in Section 5.L. (Legal Compliance), Section 7. (Confidentiality, Covenants Against Unfair Competition and Solicitation), Section 8. (Use of Marks and Copyrighted Materials), Section 9. (Transfer and Assignment), and Section 14. (Applicable Law; Dispute Resolution) of the Agreement and is obligated to perform thereunder; and (ii) represents that each and every representation of Franchisee made in connection with the Agreement is true, correct, and complete in all respects as of the time given and as of the time of the undersigned's execution of this Principals' Undertaking.
(c) If Principal is an Owner, Principal (i) makes all of the covenants, representations, and warranties set forth in Sections 7.B and 7.D of the Agreement and (ii) represents that each and every representation of Franchisee made in connection with the Agreement is true, correct, and complete in all respects as of the time given and as of the time of the undersigned's execution of this Principals' Undertaking.
If Principal is not an Owner, Principal shall not be bound by Sections 7.B and 7.D of the Agreement.
- (d) Principal agrees to jointly, individually, and severally become a surety and guarantor for the payment of all amounts Franchisee must pay under the terms of the Agreement, including under any indemnity.
Principal's liability under this undertaking shall be direct, immediate, and independent of the liability of, and shall be joint and several with, Franchisee and the other guarantors of Franchisee.
Principal shall render any payment or performance required under the Agreement upon demand if Franchisee fails or refuses punctually to do so.
Franchisor may proceed against Principal and Franchisee jointly and severally, or Franchisor may, at its option, proceed against Principal, without having commenced any action or obtained any judgment against Franchisee.
Principal agrees to pay all reasonable attorneys' fees and all costs and other expenses incurred in any collection or attempt to collect amounts due pursuant to this undertaking or any negotiations relative to the obligations hereby guaranteed or in enforcing this undertaking against Principal.
Principal consents and agrees that: (1) Principal's liability will not be contingent or conditioned upon Franchisor's pursuit of any remedies against the Franchisee or any other person; (2) Principal's liability will not be diminished, relieved, or otherwise affected by the Franchisee's insolvency, bankruptcy, or reorganization; the invalidity, illegality, or unenforceability of all or any part of the Agreement; or the amendment or extension of the Agreement with or without notice to the Principal; (3) Principal's liability shall not be diminished, relieved, or otherwise affected by any extension of time, credit, or other indulgence which Franchisor may grant to Franchisee or to any other person, including the acceptance of any partial payment or performance, or the compromise or release of any claims, none of
Source: Item 22 — CONTRACTS (FDD page 71)
What This Means (2025 FDD)
According to Belocal's 2025 Franchise Disclosure Document, the Principals' Undertaking is a critical component of the franchise agreement, designed to ensure that the obligations and responsibilities of the franchisee are also directly enforceable against the individuals who are principals of the franchisee entity. This is particularly relevant when the franchisee is a corporation, partnership, or LLC, rather than an individual. The franchisor, N2 Franchising, Inc., requires this undertaking as a condition for entering into the franchise agreement, indicating that they would not proceed without it.
The Principals' Undertaking makes the principal jointly, individually, and severally liable for the franchisee's obligations, including financial payments and compliance with key sections of the franchise agreement. These sections include legal compliance, confidentiality, non-competition, use of marks and copyrighted materials, transfer and assignment restrictions, and dispute resolution. This means that the franchisor can pursue the principal directly for any breaches or failures by the franchisee, without first having to take action against the franchisee itself. The principal also guarantees the franchisee's payment obligations, including any indemnities.
Furthermore, the document specifies that the principal's obligations are independent of the franchisee's, allowing the franchisor to bring separate actions against the principal. The principal also waives certain rights, such as the right to demand action against the franchisee first, and consents to the franchisor modifying the agreement without affecting the principal's liability. This ensures that the franchisor has direct recourse to the individuals controlling the franchisee entity, adding an extra layer of security and accountability.
In essence, the Principals' Undertaking serves to protect Belocal by ensuring that individuals with a significant stake in the franchisee's business are personally bound by the terms of the franchise agreement. This arrangement is common in franchising, as it mitigates the risk associated with franchisees operating through limited liability entities, and it aligns the interests of the principals with the success and compliance of the franchise.