What are the implications of Checkers not guaranteeing a franchisee's leases or other obligations (Item 10) on the franchisee's financial risk?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
THE CALIFORNIA FRANCHISE INVESTMENT LAW REQUIRES THAT A COPY OF ALL PROPOSED AGREEMENTS RELATING TO THE SALE OF THE FRANCHISE BE DELIVERED TOGETHER WITH THE FRANCHISE DISCLOSURE DOCUMENT AT LEAST 14 DAYS PRIOR TO EXECUTION OF ANY BINDING FRANCHISE OR OTHER AGREEMENT, OR AT LEAST 14 DAYS PRIOR TO THE RECEIPT OF ANY CONSIDERATION, WHICHEVER OCCURS FIRST.
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- Registration of this franchise does not constitute approval, recommendation, or endorsement by the Commissioner of the Department of Financial Protection and Innovation.
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- The "Special Risks to Consider about This Franchise" cover page is amended by adding the following:
Personal Guarantee: Franchisees and all owners must sign a personal guarantee, making you and your spouse individually liable for your financial obligations under the agreement if you are married. The guarantee will place your and your spouse's marital and personal assets at risk if your franchise fails.
What This Means (2025 FDD)
The 2025 Checkers Franchise Disclosure Document does not explicitly state that Checkers will not guarantee a franchisee's leases or other obligations. However, the FDD does state that franchisees and all owners must sign a personal guarantee, making them individually liable for their financial obligations under the agreement. This guarantee places the franchisee's and their spouse's marital and personal assets at risk if the franchise fails. This is a common practice in franchising, as it ensures that the franchisee is fully committed to the business and that Checkers has recourse in case of default.
Additionally, Checkers has the right to approve the terms of any lease, sublease, or purchase contract for the premises of the franchised restaurant. If Checkers agrees to sublease the premises to the franchisee, the franchisee is required to pay rent under the sublease to the landlord, along with related occupancy costs, including property taxes, insurance, maintenance, and structural repairs. Checkers may also charge a sublease administrative fee of up to 10% of the rent that remains due under the current lease term if Checkers remains a guarantor on the lease.
Prospective franchisees should carefully consider the implications of the personal guarantee and the lease arrangements before investing in a Checkers franchise. They should consult with legal and financial advisors to fully understand the risks and obligations involved. While the FDD does not explicitly state that Checkers will not guarantee a franchisee's leases, the personal guarantee requirement and the lease arrangements outlined in the document highlight the franchisee's significant financial responsibilities and potential risks.