Does the Hyper Kidz Multi-Unit Development Agreement contain a cross-default provision, and if so, what does it relate to?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
| Provision | Section in Multi- | Summary | |
|---|---|---|---|
| Unit Development Agreement | |||
| (c) Requirements for multi- | None | Not applicable | |
| unit developer to renew | |||
| or extend | |||
| (d) Termination by multi- | None | You may seek to terminate on any grounds | |
| unit developer | available to you at law | ||
| (e) Termination by | None | Not applicable | |
| franchisor without | |||
| cause | |||
| (f) Termination by | Section 9 | We can terminate if you commit any one of | |
| franchisor with cause | several listed violations | ||
| (g) “Cause” defined – curable defaults | Section 9 | If you use the Marks or System without our consent; participating in a Competitive Business; failure to pay money to us when due; you begin developing a Hyper Kidz Business before all of your pre-development obligations are met; failure to obtain our consent when required; you open any Hyper Kidz Business before a Franchise Agreement for that Hyper Kidz Business has been signed | |
| (h) “Cause” defined – non- curable defaults | Section 9 | Failure to meet your minimum performance schedule; failure to comply with applicable laws; if all of your Hyper Kidz Businesses stop operating; unauthorized transfer; you make a material misrepresentation to us; conviction by you or your Principals of an indictable offense; bankruptcy or insolvency; |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 41–49)
What This Means (2024 FDD)
According to Hyper Kidz's 2024 Franchise Disclosure Document, the Multi-Unit Development Agreement includes a cross-default provision. Specifically, if a Franchise Agreement with Hyper Kidz is terminated according to its terms, this constitutes a non-curable default under the Multi-Unit Development Agreement.
In practical terms, this means that if a franchisee breaches the terms of their individual Franchise Agreement for a Hyper Kidz location, leading to its termination, the franchisor can then terminate the Multi-Unit Development Agreement as well. This is a significant point for potential multi-unit developers, as the performance and adherence to the Franchise Agreement terms for each individual location directly impacts the overall development agreement.
Cross-default provisions are relatively common in franchising, especially in multi-unit agreements. They protect the franchisor by ensuring consistent brand standards and operational compliance across all locations operated by the same developer. This provision underscores the importance of carefully managing each Hyper Kidz location to avoid triggering a default that could jeopardize the entire development agreement.