What must an All States M.E.D. franchisee demonstrate to avoid termination if they understate Royalty Fees?
All_States_M_E_D Franchise · 2024 FDDAnswer from 2024 FDD Document
Franchisee shall pay to Franchisor without offset, credit or deduction of any nature, a monthly fee ("Royalty Fee") equal to 8% of Gross Revenues for the previous month period. The Royalty Fee is due on the tenth (10th) day of each month (for the prior month) and begins on the first (1st) month after the Business is open for operation and continues for the duration the term of this Agreement. The Franchisee will provide to Franchisor a Gross Revenues Report, as required by Section 12.2, for each month during the operation of the Franchise. If Franchisor requires Franchisee to pay Royalty Fees through electronic transfer as in Section 3.4, such reports shall instead be submitted to Franchisor via facsimile transmission, e-mail or intranet system.
3.3 Taxes
Franchisee shall pay its own taxes as related to the Business.
3.4 Electronic Transfer
Franchisor shall require all Royalty Fees, amounts due for purchases by Franchisee from Franchisor and other amounts due to Franchisor to be paid through an Electronic Depository Transfer Account ("EDTA"). At Franchisor's request, Franchisee shall open and maintain an EDTA, and shall provide Franchisor with continuous access to such account for the purpose of receiving any payments due to Franchisor. Franchisee shall make deposits to the account sufficient to cover amounts owed to Franchisor prior to the date such amounts are due. Franchisee shall execute any documents Franchisor's or Franchisee's bank requires to establish and implement the EDTA. Once established, Franchisee shall not close the EDTA without Franchisor's written consent.
3.5 Late Fees
All Royalty Fees, amounts due from purchases by Franchisee from Franchisor and other amounts not received by Franchisor within five (5) days after the due date shall incur late fees at the rate of one and one-half percent (1.5%) per month (or the highest rate allowed by the law of the state where Franchisee is located, whichever is lower) from the date payment is due to the date payment is received by Franchisor. Franchisee shall pay Franchisor for all costs incurred by Franchisor in the collection of any unpaid and past due amounts due Franchisor, including reasonable accounting and legal fees. This Section shall not constitute an agreement by Franchisor to accept any payments after the due date or a commitment by Franchisor to extend credit to or otherwise finance Franchisee.
Source: Item 23 — RECEIPTS (FDD pages 44–174)
What This Means (2024 FDD)
Based on the 2024 All States M.E.D. Franchise Disclosure Document, the excerpt provided does not specify the exact steps a franchisee must take to avoid termination if they understate Royalty Fees. However, it does outline the consequences of underpayment and the general obligations of the franchisee.
The document states that the franchisee is obligated to pay a monthly Royalty Fee equal to 8% of Gross Revenues, due on the tenth of each month. It also mentions that late fees will be incurred for any amounts not received within five days of the due date, at a rate of 1.5% per month or the highest rate allowed by state law. The franchisee is responsible for covering all costs All States M.E.D. incurs in collecting unpaid amounts, including accounting and legal fees.
To gain a comprehensive understanding of how to avoid termination for understating Royalty Fees, a prospective All States M.E.D. franchisee should ask the franchisor for specific details on the process for rectifying errors in royalty payments, any potential grace periods or appeal processes, and the criteria used to determine whether an understatement is considered a breach of contract leading to termination. This information is crucial for ensuring compliance and maintaining a positive relationship with All States M.E.D.