What is the significance of the California Addendum to the Aerus Disclosure Document and Franchise Agreement?
Aerus Franchise · 2025 FDDAnswer from 2025 FDD Document
Item 23
RECEIPTS
Two copies of a Receipt for this Disclosure Document are attached as the last two pages.
(California, Illinois, Maryland, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, Wisconsin)
CALIFORNIA ADDENDUM TO DISCLOSURE DOCUMENT AND FRANCHISE AGREEMENT
THE CALIFORNIA FRANCHISE INVESTMENT LAW REQUIRES THAT A COPY OF ALL PROPOSED AGREEMENTS RELATING TO THE SALE OF THE FRANCHISE BE DELIVERED TOGETHER WITH THE DISCLOSURE DOCUMENT.
California Business and Professions Code Sections 20000 through 20043 provide rights to the franchisee concerning termination, transfer, or non-renewal of a franchise. If the franchise agreement contains a provision that is inconsistent with the law, the law will control."
The franchise agreement provides for termination upon bankruptcy. This provision may not be enforceable under Federal bankruptcy law (11 U.S.C.A. Sec. 101 et seq.).
The franchise agreement contains a covenant not to compete which extends beyond the termination of a franchise. This provision may not be enforceable under California law.
The franchise agreement contains a liquidated damages clause. Under California Civil Code Section 1671, certain liquidated damages clauses are unenforceable.
The franchise agreement requires binding arbitration. The arbitration will occur at Dallas, Texas with the costs being borne by non-prevailing party. This provision may not be enforceable under California law.
Prospective franchisees are encouraged to consult private legal counsel to determine the applicability of California and federal laws (such as Business and Professions Code Section 20040.5, Code of Civil Procedure Section 1281, and the Federal Arbitration Act) to any provisions of a franchise agreement restricting venue to a forum outside the State of California.
The franchise agreement requires application of the laws of the State of Texas. This provision may not be enforceable under California law.
The maximum interest rate in California is 10% annually. We do not offer financing to California franchises.
Source: Item 23 — Receipts (FDD pages 74–305)
What This Means (2025 FDD)
According to Aerus's 2025 Franchise Disclosure Document, the California Addendum is a crucial component for prospective franchisees in California. It addresses specific legal considerations and potential conflicts between the standard Aerus Franchise Agreement and California law. The addendum emphasizes that California law will take precedence over any conflicting terms in the franchise agreement, ensuring that franchisees' rights under California Business and Professions Code Sections 20000 through 20043, which concern termination, transfer, or non-renewal of a franchise, are protected.
Several specific clauses within the standard Aerus franchise agreement may not be enforceable in California. These include provisions related to termination upon bankruptcy, covenants not to compete extending beyond the franchise term, liquidated damages clauses, mandatory binding arbitration in Dallas, Texas, and the application of Texas state laws. The addendum explicitly states that these provisions may conflict with California law and encourages prospective franchisees to seek independent legal counsel to understand the applicability of California and federal laws, such as Business and Professions Code Section 20040.5, Code of Civil Procedure Section 1281, and the Federal Arbitration Act, to any venue restrictions outside California.
Furthermore, the California Addendum clarifies that Aerus does not offer financing to California franchisees and confirms that the maximum interest rate permissible in California is 10% annually. This information is particularly important for franchisees evaluating their financing options. By highlighting these potential conflicts and legal nuances, the California Addendum serves to inform and protect prospective Aerus franchisees, ensuring they are aware of their rights and obligations under California law before entering into a franchise agreement. It also underscores the importance of seeking legal advice to navigate these complexities effectively.