Besides termination, what other action can Cinnaholic take if a franchisee defaults?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
- 21.4.
Management of Bakery by Franchisor.
In addition to Franchisor's right to terminate this Agreement, and not in lieu thereof, Franchisor may enter into the Bakery and exercise complete authority with respect to the management thereof until such time as Franchisor shall determine that the default of Franchisee has been cured and that Franchisee is complying with the requirements of this Agreement.
Franchisee specifically agrees that a designated representative of Franchisor may take control and manage
the Bakery in the event of any such default.
If Franchisor assumes the management of the Bakery, Franchisee must pay Franchisor (in lieu of the Royalty Fee) a Management Fee equal to ten percent (10%) of the Bakery's Gross Sales (the "Management Fee") plus reimburse Franchisor for the full compensation paid to such representative, including the cost of all fringe benefits plus any and all expenses reasonably incurred by such representative so long as such representative shall be necessary and in any event until the default has been cured and Franchisee is complying with the terms of this Agreement.
Franchisee acknowledges that the Management Fee shall be in addition to the Advertising Fee and any other fees (except the Royalty Fee) required under this Agreement and shall be paid in accordance with the methods of payment set forth in Section 5.
If Franchisor assumes the Bakery's management, Franchisee acknowledges that Franchisor will have a duty to utilize only reasonable efforts and will not be liable to Franchisee or its owners for any debts, losses, or obligations the Bakery incurs, or to any of Franchisee's creditors for any supplies or services the Bakery purchases, while Franchisor manages it.
Source: Item 22 — CONTRACTS (FDD pages 61–62)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, besides terminating the franchise agreement, Cinnaholic has the right to enter the bakery and take control of its management if a franchisee defaults. This control will remain until Cinnaholic determines that the default has been resolved and the franchisee is complying with the agreement.
If Cinnaholic assumes management of the bakery, the franchisee is obligated to pay Cinnaholic a Management Fee. This fee is equal to ten percent of the bakery's gross sales, replacing the standard royalty fee. Additionally, the franchisee must reimburse Cinnaholic for the full compensation paid to the representative managing the bakery, including fringe benefits and any expenses reasonably incurred. This Management Fee is in addition to the Advertising Fee and any other fees required under the agreement, except for the Royalty Fee.
The FDD clarifies that if Cinnaholic assumes management, they are only required to utilize reasonable efforts and will not be liable to the franchisee or its owners for any debts, losses, or obligations the bakery incurs during the management period. This also extends to any of the franchisee's creditors for supplies or services purchased by the bakery while under Cinnaholic's management. This arrangement ensures that Cinnaholic can take corrective action while protecting itself from liabilities arising from the bakery's operations during the period of default.