What happens to the Franchise Fee if All States M.E.D. terminates the agreement because the franchisee failed to commence operations in time?
All_States_M_E_D Franchise · 2024 FDDAnswer from 2024 FDD Document
Should Franchisee fail to commence operations of the Franchised Business within 300 days after the Effective Date, Franchisor has the right to terminate this Agreement. Franchisee must secure a location within 90 days. Franchisor shall have a period of 10 days to approve such location, and Franchisee must sign the lease within 15 days following our approval of such location. If this Agreement is terminated according to this Section 5.4, Franchisor shall retain the entire Franchise Fee paid by Franchisee. The Franchise Fee retained shall be specifically understood and agreed by the parties to be in consideration of the services provided, time expended, work performed, and other efforts of Franchisor up to the date of Franchisee's failure to timely commence operations of the Franchised Business and shall not be construed as nor considered to be a penalty.
Source: Item 23 — RECEIPTS (FDD pages 44–174)
What This Means (2024 FDD)
According to All States M.E.D.'s 2024 Franchise Disclosure Document, if a franchisee fails to commence operations within 300 days after the effective date of the agreement, All States M.E.D. has the right to terminate the agreement. The franchisee must secure a location within 90 days, which All States M.E.D. has 10 days to approve. Following approval, the franchisee must sign the lease within 15 days.
If All States M.E.D. terminates the agreement due to the franchisee's failure to commence operations in a timely manner, All States M.E.D. will retain the entire franchise fee paid by the franchisee. The document specifies that this retained franchise fee is in consideration for the services provided, time expended, work performed, and other efforts of All States M.E.D. up to the date of the franchisee's failure to commence operations.
The agreement explicitly states that the retention of the franchise fee under these circumstances is not to be construed as a penalty but rather as compensation for the work All States M.E.D. has already performed. This is a crucial point for prospective franchisees to understand, as it means they risk losing the entire franchise fee if they are unable to open their All States M.E.D. franchise within the specified timeframe.