Does the Carls franchise agreement require the Guarantors to guarantee the franchisee's payment obligations?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
All members of the Continuity Group and their spouses, if applicable, shall jointly and severally guarantee Franchisee's payment and performance under this Agreement and shall bind themselves to the terms of this Agreement pursuant to the attached Guarantee and Assumption of Franchisee's Obligations ("Guarantee"). Notwithstanding the foregoing, CJR reserves the right, in its sole discretion, to waive the requirement that some or all of the previously described individuals execute the attached Guarantee and/or to limit the scope of the Guarantee. CJR reserves the right to require any guarantor to provide personal financial statements to CJR from time to time.
With respect to 10% Owners, Franchisee acknowledges that, unless otherwise agreed to in writing by CJR, it is CJR's intent to have individuals (and not corporations, limited liability companies or other entities) execute the Guarantee. Accordingly, if any 10% Owner is not an individual, CJR shall have the right to have the Guarantee executed by individuals who have only an indirect ownership interest in Franchisee and their spouses, if applicable. (By way of example, if a 10% Owner of Franchisee is a corporation, CJR has the right to require that the Guarantee be executed by individuals who have an ownership interest in that corporation and their spouses, if applicable.)
If Franchisee, any guarantor or any parent, subsidiary or affiliate of Franchisee holds any interest in other restaurants that are franchised by CJR or its affiliates, the party who owns that interest shall execute, concurrently with this Agreement, a form of cross-guarantee to CJR and its affiliates for the payment of all obligations for such restaurants, unless waived in writing by CJR in its sole discretion. For purposes of this Agreement, an affiliate of Franchisee is any company controlled, directly or indirectly, by Franchisee or Franchisee's parent or subsidiary.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to the 2024 Carls Franchise Disclosure Document, members of the Continuity Group and their spouses must jointly and severally guarantee the franchisee's payment and performance under the Franchise Agreement. This guarantee is solidified through the 'Guarantee and Assumption of Franchisee's Obligations.' However, Carls retains the discretion to waive this requirement for some or all individuals. Carls also reserves the right to request personal financial statements from any guarantor periodically.
Carls specifies that it prefers individuals, rather than entities, to execute the guarantee. Therefore, if a 10% Owner is not an individual, Carls can require individuals with an indirect ownership interest in the franchisee to execute the guarantee, along with their spouses if applicable.
Furthermore, if the franchisee, any guarantor, or any affiliate holds interests in other restaurants franchised by Carls or its affiliates, they must execute a cross-guarantee to cover all obligations for those restaurants, unless Carls waives this requirement in writing. This ensures that Carls has recourse across multiple franchise locations if the franchisee has financial difficulties.