Does Lees Famous Recipe require a franchisee to sign a 'Guaranty and Assumption of Obligations' contract?
Lees_Famous_Recipe Franchise · 2025 FDDAnswer from 2025 FDD Document
d agree that, following the effective date of any such assignment, you will look solely to the transferee or assignee, and not to us, for the performance of all obligations under this Agreement. Separately, we may assign or delegate to an affiliate or other third party certain of our obligations under this Agreement without assigning our interest in this Agreement. In such instance, we will remain the party ultimately responsible for the performance of such obligation(s).
- B. Assignment to Wholly Owned Entity. You (as an individual) may assign this Agreement to a corporation or a limited liability company that conducts no business other than the Restaurant (or other Lee's Famous Recipe Restaurants under franchise agreements with us), provided: (1) the Restaurant is actively managed by you or an operating manager approved by us; (2) you own one hundred percent (100%) of the ownership interest in the corporation or limited liability company; (3) you and all Principal Owners of the assignee entity sign the Guaranty attached hereto as Exhibit D; (4) you provide us thirty (30) days' written notice before the proposed date of assignment of this Agreement to the corporation or limited liability company;
Source: Item 22 — CONTRACTS (FDD pages 69–70)
What This Means (2025 FDD)
According to Lees Famous Recipe's 2025 Franchise Disclosure Document, a franchisee may be required to sign a Guaranty and Assumption of Obligations contract in specific circumstances. If a franchisee (as an individual) assigns the Franchise Agreement to a corporation or limited liability company, the franchisee and all Principal Owners of the assignee entity must sign the Guaranty attached as Exhibit D. This condition is mandatory for the assignment to be valid.
This requirement ensures that Lees Famous Recipe maintains recourse to the original franchisee's personal assets and commitment even after the business is transferred to a corporate entity. The franchisor aims to secure the franchisee's ongoing responsibility and financial backing for the franchise's performance. This is a common practice in franchising, as it protects the franchisor's interests and ensures the franchisee remains invested in the success of the business.
Furthermore, when a franchisee seeks to transfer their business, Lees Famous Recipe may require the transferee to enter into a written agreement, in a form satisfactory to them, assuming and agreeing to discharge all of the franchisee's obligations and covenants under the Franchise Agreement for the remainder of the term. Alternatively, Lees Famous Recipe may require the transferee to sign their then-current standard form of franchise agreement. This ensures that the new franchisee is fully responsible for all obligations under the agreement.