What is Cost Cutters Family Hair Salon's responsibility regarding the economics or legality of the lease?
Cost_Cutters_Family_Hair_Salon Franchise · 2024 FDDAnswer from 2024 FDD Document
COST CUTTERS' review of the Lease prior to its execution will not be for the purpose of approving the legal aspects, economics or rental terms of the Lease. Accordingly, COST CUTTERS will have no responsibility to the FRANCHISEE with regard to the economics or legality or enforceability of the Lease. If FRANCHISEE requests and COST CUTTERS agrees to guarantee FRANCHISEE's lease obligations in any way (e.g., as tenant or guarantor), then COST CUTTERS reserves the right to charge FRANCHISEE a monthly fee of the amount by which twelve percent (12%) of FRANCHISEE's monthly gross sales exceeds FRANCHISEE's monthly lease payments for as long as such guaranty is in effect. COST CUTTERS has no obligation to guarantee FRANCHISEE's lease in any way, but if COST CUTTERS does, FRANCHISEE must pay such monthly lease guaranty fee.
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, while the franchisee must submit the lease for the Franchised Location to Cost Cutters Family Hair Salon for review before execution, this review does not constitute an approval of the lease's legal aspects, economics, or rental terms. This means Cost Cutters Family Hair Salon bears no responsibility to the franchisee regarding the lease's economic viability, legality, or enforceability. The franchisee is solely responsible for ensuring the lease is sound from a legal and financial perspective.
However, the lease must contain specific provisions. It must include a Lease Addendum as outlined in Exhibit P of the Franchise Disclosure Document, and it cannot have radius restrictions. The lease must also be conditional upon Cost Cutters Family Hair Salon's approval of the franchisee. Cost Cutters Family Hair Salon needs the right to enter the premises for inspections during business hours and the option (but not the obligation) to assume the lease for the remaining term if the franchisee is evicted or the agreement terminates early. The lease must also include other reasonable terms required by Cost Cutters Family Hair Salon, such as the right to exercise options.
If a franchisee requests, and Cost Cutters Family Hair Salon agrees, to guarantee the franchisee's lease obligations, Cost Cutters Family Hair Salon can charge a monthly fee. This fee is the amount by which 12% of the franchisee's monthly gross sales exceeds the franchisee's monthly lease payments, and it remains in effect as long as the guaranty is active. However, Cost Cutters Family Hair Salon is under no obligation to guarantee the franchisee's lease. If they do, the franchisee must pay the monthly lease guaranty fee.
This arrangement is fairly typical in franchising, where the franchisee, as an independent business owner, usually bears the responsibility for their own legal and financial obligations. Prospective franchisees should seek independent legal and financial advice before signing any lease agreement to ensure they fully understand the terms and their obligations.