What happens if a Gold Star franchisee defaults on their lease agreement?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
- 14.5.5 FRANCHISEE defaults under or fails to perform any term or condition of any Lease, mortgage, deed of trust or other agreement covering the Business or the Retail Location;
EXHIBIT B TO FRANCHISE AGREEMENT
LEASE PROVISIONS
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- A provision that restricts the use of the premises solely to the operation of the franchised business;
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- A provision permitting the COMPANY to enter the Retail Location to de-identify the Business without penalty in accordance with Section 14 of this Agreement.
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- A provision requiring the landlord to provide the COMPANY with reasonable advanced notice if there is any contemplated termination and granting the COMPANY a reasonable amount of time, at the COMPANY's option, to avoid such termination (upon any such event, FRANCHISEE shall reimburse the COMPANY for all costs and expenses incurred in connection with such avoidance).
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- A provision that reserves to the COMPANY the right, but not the obligation, to assume FRANCHISEE's leasehold interest, with the right to sublease, upon termination or expiration of the lease or of this Agreement, without any assessment of additional fees, penalties, or rent acceleration; and
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- A provision that gives the COMPANY the right, but not the obligation, to enter the premises or make modifications necessary to protect the Marks or the System or to cure any default under this Agreement; and
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- A provision that restricts the lease from being modified in a manner that could materially affect the COMPANY's rights with respect to the lease, without the COMPANY's prior written consent.
Source: Item 23 — Receipts (FDD pages 53–163)
What This Means (2025 FDD)
According to Gold Star's 2025 Franchise Disclosure Document, if a franchisee defaults under any lease agreement covering their Gold Star business or retail location, it constitutes a breach of the franchise agreement. Specifically, section 14.5.5 states that a default under any lease agreement is a cause for concern.
This default allows Gold Star to exercise certain rights, as outlined in Exhibit B of the Franchise Agreement, which pertains to lease provisions. These provisions include the right, but not the obligation, for Gold Star to assume the franchisee's leasehold interest upon termination or expiration of the lease or the franchise agreement. This assumption can occur without any additional fees, penalties, or rent acceleration. Gold Star also has the right to enter the premises to make modifications necessary to protect their marks or the system, or to cure any default under the agreement.
Furthermore, the lease agreement must include provisions that protect Gold Star's interests. These include restricting the use of the premises solely to the operation of the franchised business, allowing Gold Star to de-identify the business without penalty upon termination, requiring the landlord to provide Gold Star with advanced notice of any contemplated termination, and restricting modifications to the lease that could materially affect Gold Star's rights without their prior written consent. The franchisee is responsible for reimbursing Gold Star for all costs and expenses incurred in avoiding any lease termination.
In practical terms, a Gold Star franchisee needs to ensure they maintain a strong relationship with their landlord and adhere to all lease terms to avoid default. Failure to do so not only risks losing their location but also gives Gold Star significant control over the lease and potentially the business itself. The franchisee bears the financial responsibility for any actions Gold Star takes to rectify lease issues, adding another layer of financial risk.