factual

Under what condition is the payment of the Initial Franchise/Development Fees for a Cinnaholic franchise deferred?

Cinnaholic Franchise · 2025 FDD

Answer from 2025 FDD Document

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[Signatures Appear on Following Page] Agreed: GUARANTORS: CINNAHOLIC FRANCHISING, LLC (SEAL) Address: Its: Social Security No.: (SEAL) Address: Social Security No.: (SEAL) Address: Social Security No.: (SEAL) Address: Social Security No.:

Exhibit G

State Specific Addenda

(See Attached) (California)

The following Addendum modifies and supersedes the Cinnaholic Franchising, LLC Franchise Agreement (the "Agreement") with respect to CINNAHOLIC® franchises offered or sold to either a resident of the State of California or a non-resident who will be operating a CINNAHOLIC® franchise in the State of California pursuant to the California Franchise Investment Law §§ 31000 through 31516, and the California Franchise Relations Act, California Business and Professions Code §§ 20000 through 20043, as follows:

  1. The first sentence of Section 4 of the Franchise Agreement is deleted in its entirety and replaced with the following:

The Department has determined that we, the franchisor, have not demonstrated we are adequately capitalized and/or that we must rely on franchise fees to fund our operations. The Commissioner has imposed a fee deferral condition, which requires that we defer the collection of all initial fees from California franchisees until we have completed all of our pre-opening obligations and you are open for business. The payment of the development and initial fees attributable to a specific unit in your development schedule is deferred until that unit is open.

    1. If any of the provisions of the Agreement concerning termination and non-renewal of a franchise are inconsistent with either the California Franchise Relations Act or with the federal bankruptcy law (11 U.S.C. §101, et seq.) (concerning termination of the Agreement on certain bankruptcy-related events), then such laws will apply.
    1. The Agreement requires that it be governed by Georgia law. This requirement may be unenforceable under California law.
    1. Franchisee must sign a general release if Franchisee renews or transfers its franchise. California Corporations Code 31512 voids a waiver of Franchisee's rights under the Franchise Investment Law (California Corporations Code 31000 through 31516). Business and Professions Code 20010 voids a waiver of Franchisee's rights under the Franchise Relations Act (Business and Professions Code 20000 through 20043).
    1. The Agreement contains a covenant not to compete, as well as a no-poach/non-solicitation covenant, which extend beyond the termination of the franchise. These provisions may not be enforceable under California law.

6. Section 31512.1- Franchise Agreement Provisions Void as Contrary to Public Policy:

Any provision of a franchise agreement, franchise disclosure document, acknowledgement, questionnaire, or other writing, including any exhibit thereto, disclaiming or denying any of the following shall be deemed contrary to public policy and shall be void and unenforceable:

  • (a) Representations made by the franchisor or its personnel or agents to a prospective franchisee.
  • (b) Reliance by a franchisee on any representations made by the franchisor or its personnel or agents.
  • (c) Reliance by a franchisee on the franchise disclosure document, including any exhibit thereto.
  • (d) Violations of any provision of this division.
    1. Franchisor and Franchisee agree to be bound by the provisions of any limitation on the period of time in which claims must be brought under applicable law or this Agreement, whichever expires earlier.
    1. No statement, questionnaire, or acknowledgment signed or agreed to by a franchisee in connection with the commencement of the franchise relationship shall have the effect of (i) waiving any claims under any applicable state franchise law, including fraud in the inducement, or (ii) disclaiming reliance on any statement made by any franchisor, franchise seller, or other person acting on behalf of the franchisor. This provision supersedes any other term of any document executed in connection with the franchise. See NASAA STATEMENT OF POLICY REGARDING THE USE OF FRANCHISE QUESTIONNAIRES AND ACKNOWLEDGMENTS. https://www.nasaa.org/wp-content/uploads/2022/11/sop-franchisequestionnaires.pdf
    1. To the extent this Addendum is inconsistent with any terms or conditions of the Agreement or the Exhibits or Schedules thereto, the terms of this Addendum shall govern.

Source: Item 22 — CONTRACTS (FDD pages 61–62)

What This Means (2025 FDD)

According to the 2025 Cinnaholic Franchise Disclosure Document, the payment of initial franchise and development fees is deferred under specific conditions that vary by state. In California, the collection of all initial fees from franchisees is deferred until Cinnaholic has completed all pre-opening obligations and the franchisee is open for business. This deferral is due to the Department determining that Cinnaholic has not demonstrated adequate capitalization or relies on franchise fees to fund operations. The payment of development and initial fees attributable to a specific unit in a development schedule is also deferred until that unit opens.

In Maryland, all initial fees and payments owed by franchisees are deferred until Cinnaholic completes its pre-opening obligations under the franchise agreement. Additionally, all development fees and initial payments by area developers are deferred until the first franchise under the development agreement opens. This requirement is based on Cinnaholic's financial condition, as mandated by the Maryland Securities Commissioner, who requires a financial assurance.

In Illinois, the payment of initial franchise and development fees will be deferred until Cinnaholic has met its initial obligations to the franchisee, and the franchisee has commenced doing business. This financial assurance requirement was imposed by the Office of the Illinois Attorney General due to Cinnaholic's financial condition. Similarly, in Minnesota, the Commissioner of Commerce requires that payment of all Initial Franchise Fees be deferred until Cinnaholic has fulfilled all initial obligations under the Franchise Agreement and the franchisee has commenced doing business. The Initial Franchise Fees must be paid in full immediately upon the commencement of the Cinnaholic business.

In Virginia, the Virginia State Corporation Commission's Division of Securities and Retail Franchising requires Cinnaholic to defer payment of the initial franchise fee and other initial payments owed by franchisees until Cinnaholic has completed its pre-opening obligations under the franchise agreement. These state-specific addenda modify the standard franchise agreement to comply with local franchise laws and regulations, providing financial assurance to franchisees based on Cinnaholic's financial condition or until certain pre-opening obligations are met.

Disclaimer: This information is extracted from the 2025 Franchise Disclosure Document and is provided for research purposes only. It does not constitute legal or financial advice. Consult with a franchise attorney before making any investment decisions.
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