Under what condition is a cross-guarantee required for other restaurants franchised by CJR or its affiliates if the Carls Jr. Franchisee holds an interest in them?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 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 pages 75–76)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, a cross-guarantee is required if a franchisee, any guarantor, or any parent, subsidiary, or affiliate of the franchisee holds an interest in other restaurants franchised by CJR or its affiliates. In such cases, the party owning that interest must execute a cross-guarantee to CJR and its affiliates, ensuring the payment of all obligations for those restaurants. However, CJR has the sole discretion to waive this requirement in writing.
For a prospective Carls Jr. franchisee, this means that if they or any related entity have ownership in other restaurants franchised by CJR or its affiliates, they will likely need to provide a cross-guarantee. This guarantee would make them responsible for the financial obligations of those other restaurants. This could significantly increase the franchisee's financial risk, as they would be liable not only for their own Carls Jr. franchise but also for the performance of other related restaurant businesses.
It is important for potential Carls Jr. franchisees to carefully consider this cross-guarantee provision and its implications. They should assess their existing business interests and consult with legal and financial advisors to understand the full extent of their potential liability. Franchisees should also inquire about the possibility of obtaining a written waiver from CJR, although the franchisor is under no obligation to grant one.