What right does Cinnaholic have under the Collateral Assignment of Lease if a Cinnaholic franchise agreement is terminated?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
If you lease the site for your Bakery, you must collaterally assign your lease to us by signing the form of Collateral Assignment of Lease attached as an exhibit to the Development Agreement and have your landlord sign the Collateral Assignment of Lease consenting to the assignment. Under the Collateral Assignment of Lease, we will be granted the right, but not the obligation, to take possession of your Bakery's premises if your franchise agreement is terminated.
Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 21–25)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, if a franchisee's lease is collaterally assigned to Cinnaholic and the franchise agreement is terminated, Cinnaholic has the right, but not the obligation, to take possession of the bakery's premises. This is established through the Collateral Assignment of Lease, which the franchisee and their landlord must sign.
This provision protects Cinnaholic by allowing them to potentially continue operating a location even after a franchise agreement ends. This could be due to the franchisee's default or any other reason for termination. By taking possession of the premises, Cinnaholic can mitigate losses and maintain brand presence in that market.
For a prospective franchisee, this means that upon termination of the franchise agreement, they could lose control of their business location. While Cinnaholic is not obligated to take over the location, the possibility exists, and franchisees should understand this risk. It is important to carefully review the terms of the Collateral Assignment of Lease and understand the conditions under which Cinnaholic might exercise its right to take possession of the premises.