Thanks for the answer, so the only solution would be to apply the Boolean modifier first and then apply subsurf afterwards?

Thanks for the hint, of course it was the scale! It usually is hahaha now everything works perfectly.

If it's okay to post a follow-up question on here, could you help me with one more thing? I've applied the above principles to a blanket with tassels falling onto some cushions. I've added tassels to the blanket using the particle instance modifier and then used the surface deform modifier to bind the mesh to a subdivided plane (to which the cloth simulation is being applied). But when I start the simulation, the fringes fly off and distort instead of moving as you would expect them to. Here's the .blend file: drive.google.com/file/d/1iYh7nYED2lEQ6EZdO4opqZgDfmqrCpS_/…

It worked perfectly with your instructions, thanks again!