Does the Buona franchise agreement consider an Area Developer Agreement as an agreement between the franchisee and franchisor for cross-default purposes?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
- 7.3 If you (i) fail to meet any of the deadlines set forth in the Development Schedule; (ii) fail to comply with any other term and condition of this Agreement; (iii) make or attempt to make a transfer, sale or assignment of this Agreement in violation of this Agreement; or (iv) you or other entity owned by the Owners are in default under any individual Franchise Agreement with us, or of any other agreement to which we are parties; any such event shall constitute a default under this Agreement.
Upon any such default, we, in our sole discretion, may do any one or more of the following:
(a) Terminate this Agreement and all rights granted hereunder to you without affording you any opportunity to cure the default effective immediately upon delivery to you of a written notice from us;
(b) Reduce the number of Buona Restaurants which you have the right to establish and open pursuant to this Agreement and reduce the corresponding Development Territory; or
(c) Exercise any other rights and remedies which we may have under applicable law.
Source: Item 22 — CONTRACTS (FDD page 78)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, a default under any individual Franchise Agreement or any other agreement between the franchisee (or an entity owned by the franchisee's owners) and Buona constitutes a default under the Area Development Agreement. This means that if a Buona franchisee fails to meet obligations in their franchise agreement, such as maintaining standards or making payments, it triggers a default not only in that agreement but also in their Area Development Agreement.
Buona, at its sole discretion, has several options upon such a default. It can terminate the Area Development Agreement and all rights granted to the developer without any opportunity to cure the default. Alternatively, Buona can reduce the number of Buona Restaurants the developer has the right to establish and open, along with a corresponding reduction in the Development Territory. Buona can also exercise any other rights and remedies available under applicable law.
This cross-default provision in Buona's agreements is significant for prospective area developers. It creates a situation where the success of existing franchise locations directly impacts the developer's ability to expand. A developer needs to ensure that all existing franchise locations are operating smoothly and in compliance with their respective franchise agreements to avoid jeopardizing their development rights. This interdependency adds a layer of risk and complexity to the area development model.