Is Cost Cutters Family Hair Salon obligated to guarantee the franchisee's lease?
Cost_Cutters_Family_Hair_Salon Franchise · 2024 FDDAnswer from 2024 FDD Document
- 22.2 FRANCHISEE'S ASSIGNMENT OF LEASE. The FRANCHISEE hereby assigns and transfers all of its right, title and interest in and to the Lease (which is incorporated herein by reference) to COST CUTTERS as security for the FRANCHISEE'S performance of the terms and conditions of this Agreement.
If this Agreement is terminated by either COST CUTTERS or the FRANCHISEE for any reason whatsoever, if the FRANCHISEE wrongfully terminates this Agreement by failing to comply with Article 10 or for any other reason, if the FRANCHISEE at any time ceases to do business at the Franchised Location as a Cost Cutters Business, or if this Agreement expires and the FRANCHISEE does not reacquire the franchise (an "Event of Default"), then COST CUTTERS will have the right and option, but not the obligation, to take and assume the Lease for the remaining term under the same terms and conditions, including rental, as originally contracted by the FRANCHISEE.
The FRANCHISEE will execute a UCC-1 Financing Statement and such other documents as may be reasonably required by COST CUTTERS' attorneys to perfect and record COST CUTTERS' security interest in the Lease.
- 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, franchisees are required to assign their lease to Cost Cutters Family Hair Salon as security for their performance under the franchise agreement.
If the franchise agreement is terminated by either party, if the franchisee fails to comply with Article 10 or otherwise wrongfully terminates the agreement, ceases business at the franchised location, or if the agreement expires without renewal, Cost Cutters Family Hair Salon has the option, but not the obligation, to assume the lease for the remaining term under the original terms and conditions.
To perfect this assignment, the franchisee must execute a UCC-1 Financing Statement and other documents required by Cost Cutters Family Hair Salon's attorneys. This assignment is considered perfected and absolute but Cost Cutters Family Hair Salon cannot enforce the lease provisions until an event of default occurs.
After an event of default, Cost Cutters Family Hair Salon can take possession of the location by providing written notice to the franchisee and landlord, stating that it is assuming the lease, the date of possession, and that Cost Cutters Family Hair Salon agrees to be bound by the lease terms going forward. Cost Cutters Family Hair Salon will execute an assignment form when providing this notice. Cost Cutters Family Hair Salon does not guarantee the franchisee's lease, but rather has the option to take over the lease under certain conditions.