Under the Buona franchise agreement, does a default by an affiliate of the franchisee under an Arrearage Agreement trigger a default under the franchise agreement?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
(or any affiliate of Franchisee) and Franchisor or its Affiliates will be grounds for termination of this Agreement and/or all agreements between Franchisee (or any affiliate of Franchisee) and Franchisor or its Affiliates without additional notice or opportunity to cure.
- 16.6 Arrearage Agreement. Notwithstanding anything to the contrary set forth in this Agreement, Franchisee hereby acknowledges that any agreement between Franchisee and Franchisor or its Affiliates relating to past due amounts accruing hereunder (an "Arrearage Agreement"), including but not limited to any promissory note, payment plan or amendment to this Agreement shall be deemed to be a material part of this Agreement and shall be incorporated herein by reference. A default under any Arrearage Agreement shall be deemed a material default of this Agreement, regardless of the reason Franchisee fails to pay the amount that is the subject of an Arrearage Agreement. This provision does not require Franchisor to waive any payments due from Franchisee or to enter into any Arrearage Agreement.
- 16.7 Statutory Cure Period. If a default is curable under this Agreement, and the applicable law in the state in which the Franchised Business is located requires a longer cure period than that
specified in this Agreement, the longer period will apply.
Source: Item 22 — CONTRACTS (FDD page 78)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, a default by an affiliate of the franchisee under an Arrearage Agreement is considered a material default under the franchise agreement. Specifically, any agreement between the franchisee and Buona or its affiliates relating to past due amounts is considered a material part of the agreement.
This means that if a franchisee's affiliate fails to meet the obligations outlined in an Arrearage Agreement, it is automatically considered a default of the franchise agreement, regardless of the reason for non-payment. This provision does not obligate Buona to offer Arrearage Agreements or waive any payments due from the franchisee.
Furthermore, the FDD states that a default by a franchisee under any agreement with Buona or its affiliates will be deemed a default under all agreements. This cross-default provision extends to agreements with the franchisee's affiliates and includes any other Franchise Agreement or Area Developer Agreement. This means that a default by an affiliate under an Arrearage Agreement not only triggers a default under the franchise agreement associated with that specific Arrearage Agreement but also potentially under all other agreements the franchisee or its affiliates have with Buona.
In practical terms, this clause creates a significant risk for franchisees and their affiliates. It emphasizes the importance of ensuring all financial obligations are met, as a default by one entity can have cascading consequences across all related agreements. Prospective franchisees should carefully consider the financial stability of their affiliates and the potential impact of any Arrearage Agreements on their overall franchise relationship with Buona.