Does the cross-default provision apply to breaches of Development Agreements with Brain Balance?
Brain_Balance Franchise · 2025 FDDAnswer from 2025 FDD Document
the occurrence of any default or breach by FRANCHISEE (or its (h) principals, partners, members, officers, shareholders or directors, or their respective spouses) of any other agreement between COMPANY (or its Affiliates and subsidiaries) and FRANCHISEE or any entity with which FRANCHISEE, any of its officers, shareholders, directors, employees, partners, or members is an Affiliate shall be deemed a default under this Agreement. Any default or breach of this Agreement by FRANCHISEE or any entity with which FRANCHISEE, any of its officers, shareholders, directors, employees, partners, or members is an Affiliate, shall be deemed a default or breach under any and all other agreements between Franchisor (or its Affiliates and subsidiaries) and FRANCHISEE (or any entity with which FRANCHISEE, any of its officers, shareholders, directors, employees, partners, or members is an Affiliate). If the nature of such default under any other agreement would have permitted Franchisor to terminate this Agreement had said default occurred hereunder, Franchisor shall have the right to terminate all of the other agreements between Franchisor and FRANCHISEE, in the same manner provided for herein for termination of this Agreement. Notwithstanding anything to the contrary herein, this Section shall not apply to a breach of any Development Agreement entered into by FRANCHISEE (or its Affiliates and subsidiaries). For purposes of this section 17.01(h), Affiliate shall refer to any person or entity controlling, controlled by, or under common control with the subject person or entity.
Source: Item 22 — CONTRACTS (FDD pages 70–72)
What This Means (2025 FDD)
According to the 2025 Brain Balance Franchise Disclosure Document, a breach of the franchise agreement can trigger a default under other agreements between the franchisee and Brain Balance. Specifically, if a franchisee (or its affiliates) breaches any agreement with Brain Balance, it can be considered a default under the franchise agreement. Conversely, a breach of the franchise agreement can trigger a default under other agreements. However, the FDD explicitly states that this cross-default provision does not apply to breaches of any Development Agreement entered into by the franchisee or its affiliates.
This means that if a Brain Balance franchisee violates the terms of a Development Agreement, it will not automatically trigger a default or termination of the franchise agreement itself. The Development Agreement is treated separately in this regard. This provides some protection to franchisees who may have multiple agreements with Brain Balance.
For a prospective Brain Balance franchisee, this is an important distinction. It clarifies that a problem with a Development Agreement will not necessarily jeopardize their existing franchise agreement. However, it is crucial to carefully review all agreements with Brain Balance to fully understand the default and termination provisions within each specific contract. Franchisees should seek legal counsel to fully understand their rights and obligations under all agreements.