Under what condition are transfer fees collectable for a Cinnaholic franchise?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
t. These additional disclosures appear in Exhibit E attached to this Disclosure Document.
Exhibit F
State Specific Addenda
(See Attached)
CINNAHOLIC FRANCHISING, LLC ADDENDUM TO MARKET DEVELOPMENT AGREEMENT (California)
The following Addendum modifies and supersedes the Cinnaholic Franchising, LLC Market Development 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:
- The first sentence of Section 4 of the Agreement is deleted in its entirety and replaced with the following:
The Department has determined that we, the franchisor, have not demonstrated that we are adequately capitalized and/or that we must rely on franchise fees to fund out 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. Initial fees attributable to a specific unit should be deferred until that specific unit is open; that is, the entire payment of the entire initial fee for multiple units will not be due 5 days after signing the Market Development Agreement.
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- If any of the provisions of the Agreement concerning termination 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.
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- The Agreement requires that it be governed by Georgia law. This requirement may be unenforceable under California law.
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- Developer must sign a general release if Developer transfers its franchise. California Corporations Code 31512 voids a waiver of Developer's rights under the Franchise Investment Law (California Corporations Code 31000 through 31516). Business and Professions Code 20010 voids a waiver of Developer's rights under the Franchise Relations Act (Business and Professions Code 20000 through 20043).
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- The Agreement contains a covenant not to compete, as well as a no-poach/non-solicitation covenant, which extend beyond the termination of the Agreement. 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. | 7.
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION THE FRANCHISE RELATIONSHIP (FDD pages 42–50)
What This Means (2025 FDD)
Based on the 2025 Cinnaholic Franchise Disclosure Document, the franchisor, Cinnaholic Franchising, LLC, may defer the collection of initial fees from franchisees in certain states until specific conditions are met. These conditions are imposed by state regulatory bodies due to the franchisor's financial condition or to ensure pre-opening obligations are fulfilled.
In California, the Department has determined that Cinnaholic has not demonstrated adequate capitalization and/or relies on franchise fees to fund operations. As a result, the Commissioner has imposed a fee deferral condition, requiring Cinnaholic to defer the collection of all initial fees from California franchisees until all pre-opening obligations are completed and the franchisee is open for business. Initial fees attributable to a specific unit should be deferred until that specific unit is open.
Similarly, in Virginia, the 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. In Illinois, payment of initial franchise/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.
These deferral requirements mean that prospective Cinnaholic franchisees in California, Virginia, and Illinois will not have to pay the initial franchise fees until Cinnaholic has fulfilled its pre-opening obligations and the franchisee has commenced operations. This arrangement reduces the financial risk for new franchisees, as they are not required to pay the fees upfront before the business is ready to open. However, it is important for franchisees to understand all the pre-opening obligations and ensure they are met to trigger the payment of the initial fees.