Under the Buona franchise agreement, will a default by the franchisee's affiliate be considered a default of all agreements with the franchisor?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
(a) A default by Franchisee under this Agreement will be deemed a default of all agreements between Franchisee (or any affiliate of Franchisee) and Franchisor or its Affiliates. A default by Franchisee under any other agreement between Franchisee (or any affiliate of Franchisee) and Franchisor or its Affiliates will be deemed a default under this Agreement. A default by the guarantors of this Agreement or any other agreement of guaranty will be deemed a default of this Agreement. For purposes of clarity, any agreements between Franchisee (or any affiliate of Franchisee) and Franchisor or its Affiliates include, without limitation, any other Franchise Agreement or Area Developer Agreement.
- (b) If this Agreement is terminated as a result of a default by Franchisee (or any affiliate of Franchisee), Franchisor or its Affiliates may, at their option, elect to terminate any or all other agreements between Franchisee (or an affiliate of Franchisee) and Franchisor or its Affiliates.
If any other agreement between Franchisee (or any affiliate of Franchisee) and Franchisor or its Affiliates is terminated as a result of a default by Franchisee (or any affiliate of Franchisee), Franchisor may, at its option, elect to terminate this Agreement.
It is agreed that an incurable or uncured default under this Agreement or any other agreement between Franchisee (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.
Source: Item 23 — RECEIPTS (FDD pages 78–356)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, a default by a franchisee's affiliate under any agreement with Buona or its affiliates will be considered a default under all agreements. This cross-default provision means that if the franchisee or any of its affiliates fails to meet the obligations of any agreement with Buona, it will trigger a default across all agreements. This includes, but is not limited to, other Franchise Agreements or Area Developer Agreements.
This provision has significant implications for prospective Buona franchisees. It creates a situation where the financial stability and compliance of any affiliated entity can directly impact the franchisee's standing with Buona. For example, if a franchisee's affiliate has a separate agreement with Buona and defaults on a payment, the franchisee's primary franchise agreement could also be considered in default.
Furthermore, if any guarantor of the agreement defaults, it will be deemed a default of the Franchise Agreement. Buona has the option to terminate any or all agreements between the franchisee (or any affiliate) and Buona or its affiliates if there is a default. This could lead to the termination of the franchise agreement without additional notice or opportunity to cure the default.
This type of cross-default clause is not uncommon in franchising, as franchisors seek to protect their brand and system-wide stability. However, prospective franchisees should carefully consider the potential risks and ensure that all affiliated entities are financially stable and compliant with their respective agreements with Buona to avoid triggering a default of their franchise agreement.