Is Southern Steer obligated to enforce the provisions of the lease assignment after an event of default?
Southern_Steer Franchise · 2025 FDDAnswer from 2025 FDD Document
26.2. Perfected Assignment; Notice. This assignment will constitute a perfected, absolute and present assignment; provided, however, the Franchisor will have no right under this assignment to enforce the provisions of the Lease until an Event of Default has occurred. After an Event of Default has occurred, the Franchisor will have the right, but not the obligation, to enforce the provisions of this assignment and to take possession of the Franchised Location by giving the Franchisee and the Landlord written notice that it has affirmatively exercised its rights under this assignment. The written notice will state:
- (a) that the Franchisor is taking and assuming the Lease from the Franchisee;
- (b) the date on which the Franchisor will take physical possession of the Franchised Location; and
- (c) that the Franchisor agrees to be bound by the terms and conditions of the Lease being assumed for the remaining term of the Lease.
The Franchisor will execute the appropriate documents at the time it gives written notice to the Franchisee and the Landlord of its assumption of the Lease.
Source: Item 22 — ITEM. 22 CONTRACTS (FDD pages 61–168)
What This Means (2025 FDD)
According to Southern Steer's 2025 Franchise Disclosure Document, the franchisor is not obligated to enforce the provisions of the lease assignment after an event of default. The franchisee assigns the lease to Southern Steer as security for the franchisee's performance of the franchise agreement. If an event of default occurs, Southern Steer has the right and option, but not the obligation, to take and assume the lease for the remaining term under the same terms and conditions as originally contracted by the franchisee.
An event of default includes situations such as the termination of the franchise agreement by either party, the franchisee wrongfully terminating the agreement, the franchisee ceasing business at the franchised location, the expiration of the agreement without renewal, or the termination of the lease. This right is at Southern Steer's sole election, and Southern Steer bears no responsibility for the franchisee's past-due obligations under the lease.
After an event of default, Southern Steer has the right, but not the obligation, to enforce the provisions of the assignment and take possession of the franchised location. To do so, Southern Steer must provide written notice to both the franchisee and the landlord, stating that it is assuming the lease, the date it will take possession, and that it agrees to be bound by the lease terms for the remaining term. This notice must be accompanied by the appropriate documents.
This arrangement protects Southern Steer by giving it control over the location if a franchisee fails. However, it also means that Southern Steer can choose not to get involved in a problem location, leaving the franchisee responsible for their lease obligations. A prospective franchisee should carefully consider the implications of this arrangement and discuss it with Southern Steer during their due diligence.