What constitutes a default under the Churchs Chicken sublease agreement, considering other agreements the sublessee has entered into?
Churchs_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
Sublessee agrees to comply with all of the terms and conditions of any franchise agreement, development agreement, asset purchase agreement, promissory note, this Sublease and any guaranty, or other agreement entered into by Sublessee (collectively, the "Agreements"), any of its Affiliates (for the purposes of this Sublease, "Affiliate" shall mean any individual, group, association, limited or general partnership, corporation or other business entity which directly or indirectly controls the Sublessee, is controlled by, or is under common control with the Sublessee, or which directly or indirectly owns, controls, or holds power to vote ten percent (10%) or more of the outstanding voting securities of Sublessee, or which has in common one or more partners, officers, directors, trustees, branch managers, or other persons occupying similar status or performing similar functions), predecessors, or successors and Sublessor or any of its Affiliates, predecessors, or successors.
Any default by Sublessee of any of the Agreements listed in this Section 4 above shall, at the option of Sublessor be and constitute a default under this Sublease, such that the Agreements listed in this Section 4 above and this Sublease are cross-defaulted.
To the extent that any insurance requirements, record or bookkeeping requirements, or any other requirements in the above-described franchise, development, or other agreements require more from the Sublessee than the respective provisions of this Sublease, than the provisions of said franchise, development, and other agreements shall supersede and control.
Source: Item 23 — RECEIPT (FDD pages 68–406)
What This Means (2025 FDD)
According to the 2025 Churchs Chicken Franchise Disclosure Document, a default under any of the agreements the sublessee has entered into with the sublessor can trigger a default under the sublease agreement itself. These agreements include the franchise agreement, development agreement, asset purchase agreement, promissory note, the sublease, and any guaranty. This creates a cross-default provision, meaning that if the sublessee fails to meet the obligations in any of these related agreements, Churchs Chicken, as the sublessor, has the option to consider it a default under the sublease.
This cross-default clause has significant implications for a prospective Churchs Chicken franchisee. It means that the financial health and operational compliance of the franchise are directly linked to the sublease. For instance, if a franchisee defaults on a promissory note to Churchs Chicken, the franchisor could use that as grounds to terminate the sublease, potentially leading to the loss of the restaurant location. Similarly, failure to comply with the franchise agreement could also jeopardize the franchisee's rights under the sublease.
However, the FDD also notes an exception: failure to meet the development schedule under a development agreement does not automatically trigger a default under the sublease. Furthermore, if the requirements in the franchise agreement, development agreement, or other agreements are more stringent than those in the sublease regarding insurance, record keeping, or other matters, then the terms of those other agreements will take precedence. This indicates that Churchs Chicken prioritizes adherence to the franchise agreement and related operational standards.
Prospective franchisees should carefully review all agreements with Churchs Chicken to fully understand their obligations and the potential consequences of default. Understanding the cross-default provisions is crucial for managing risk and ensuring the long-term viability of the Churchs Chicken franchise.