Does the assignment of the lease to Cost Cutters Family Hair Salon constitute a perfected assignment?
Cost_Cutters_Family_Hair_Salon Franchise · 2024 FDDAnswer from 2024 FDD Document
- 22.3 PERFECTED ASSIGNMENT; NOTICE. This assignment will constitute a perfected, absolute and present assignment of the Lease; however, COST CUTTERS will have no right under this assignment to enforce the provisions of the Lease until an Event of Default has occurred.
After an Event of Default has occurred, COST CUTTERS will have the right, but not the obligation, to enforce the provisions of this assignment and to take possession of the Franchised Location by giving the FRANCHISEE and the Landlord written notice that it has affirmatively exercised its rights under this assignment.
The written notice will state: (A) that COST CUTTERS is taking and assuming the Lease from the FRANCHISEE; (B) the date that COST CUTTERS will take physical possession of the Franchised Location; and (C) that COST CUTTERS agrees to be bound by the terms and conditions of the Lease being assumed going forward.
COST CUTTERS will execute an assignment form at the time it gives written notice to the FRANCHISEE and the Landlord of its assumption of the Lease.
Source: Item 23 — RECEIPT (FDD pages 76–439)
What This Means (2024 FDD)
According to Cost Cutters Family Hair Salon's 2024 Franchise Disclosure Document, the assignment of the lease by the franchisee to Cost Cutters Family Hair Salon is structured as a perfected, absolute, and present assignment. However, Cost Cutters Family Hair Salon cannot enforce the lease provisions until an Event of Default occurs. This means that while the assignment is technically in place, Cost Cutters Family Hair Salon does not have the right to step in and take over the lease until the franchisee fails to meet certain obligations or defaults on the franchise agreement.
Upon an Event of Default, Cost Cutters Family Hair Salon has the right, but not the obligation, to enforce the assignment and take possession of the franchised location. To do so, Cost Cutters Family Hair Salon must provide written notice to both the franchisee and the landlord. This notice must state that Cost Cutters Family Hair Salon is assuming the lease, specify the date they will take physical possession, and confirm that Cost Cutters Family Hair Salon agrees to be bound by the lease terms going forward. At the time of providing this notice, Cost Cutters Family Hair Salon will also execute an assignment form.
This arrangement provides Cost Cutters Family Hair Salon with a security interest in the lease, ensuring they have the option to maintain control of the location if the franchisee runs into difficulties. For a prospective franchisee, this means that the lease is not entirely under their control, as Cost Cutters Family Hair Salon has a mechanism to take over the lease if the franchisee defaults. It is important for the franchisee to understand what constitutes an Event of Default and the implications of such an event on their business and lease agreement.