If the Net Sales are less than the expenses during Cream's interim operations, who is responsible for the balance?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
If the Net Sales derived from operation of your Shop are less than the amount of the associated expenses during the time of any interim operations, you are solely directly responsible for the balance of all such expenses and costs, including reimbursement of our and our affiliates' and designee's costs and expenses, and payment of any Royalty, Brand Fund Contributions, and other amounts due to us or our affiliates. We may collect any amounts owed to us, our affiliates, or designees directly from any collected Net Sales, and/or pay over such amounts to us, our affiliates, or designees in any manner we see fit.
Source: Item 23 — RECEIPTS (FDD pages 61–192)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, if Cream elects to operate a franchise location on an interim basis and the Net Sales are less than the operating expenses, the franchisee is solely responsible for the balance. This includes reimbursing Cream, its affiliates, and designees for their costs and expenses, as well as paying any Royalty, Brand Fund Contributions, and other amounts due to Cream or its affiliates. Cream has the right to collect any amounts owed directly from the collected Net Sales.
This means that even if Cream takes over operations temporarily, the franchisee remains financially liable for any shortfalls. This situation could arise if the franchisee abandons the shop, becomes disabled, or upon termination or expiration of the franchise agreement while Cream is transitioning operations. The franchisee is still responsible for accounts payable, obligations, contracts, lease obligations, and taxes unless Cream expressly assumes these obligations in connection with purchasing the shop.
This arrangement places a significant financial risk on the franchisee. Even though Cream is managing the shop, the franchisee is still on the hook for any losses incurred during the interim period. Cream's duty is only to utilize reasonable efforts, and they are not liable for any debts, losses, or obligations the shop incurs during their management. A prospective franchisee should carefully consider this potential liability and discuss with Cream what specific measures they take to ensure efficient and profitable operations during any interim management period. It would also be prudent to seek legal counsel to fully understand the implications of this clause.
Cream's ability to collect these amounts from Net Sales and to determine how these funds are distributed among themselves, their affiliates, or designees, provides them with considerable control over the financial aspects of the interim operations. Franchisees need to be aware of this and potentially negotiate terms that provide more transparency or protection regarding these financial responsibilities.