If a Carls franchisee or its affiliate holds an interest in other restaurants franchised by CJR or its affiliates, what type of guarantee is required, and can this requirement be waived?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
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 Carls's 2024 Franchise Disclosure Document, if a franchisee or their affiliate has an interest in other restaurants franchised by CJR (Carls's franchisor) or its affiliates, they must execute a cross-guarantee. This cross-guarantee ensures the payment of all obligations for those other restaurants.
In practical terms, this means that if a Carls franchisee also owns or has a stake in other franchise restaurants within the CJR network, they are guaranteeing the financial obligations of those other restaurants as well. This creates a network of financial responsibility, where the performance of one restaurant can impact the franchisee's obligations to others.
However, Carls, through CJR, retains the discretion to waive this cross-guarantee requirement in writing. This waiver is at CJR's sole discretion, meaning they are not obligated to grant it. A prospective franchisee in this situation should discuss the possibility of obtaining a waiver with Carls during their due diligence process.