What is the effect of latent defects in a Facility on the Alloy franchisee's obligation to indemnify Alloy?
Alloy Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchise Claims include, but are not limited to, those arising from any death, personal injury or property damage (whether caused wholly or in part through our or our affiliates' active or passive negligence), latent or other defects in any Facility, or your employment practices.
If a Franchise Claim is made against us or our affiliates, we reserve the right in our sole judgment to select our own legal counsel to represent our interests, at your cost.
Source: Item 23 — RECEIPTS (FDD pages 69–245)
What This Means (2025 FDD)
According to Alloy's 2025 Franchise Disclosure Document, franchisees are responsible for indemnifying Alloy and its affiliates against franchise claims, which include claims arising from latent defects in any Facility. This means that if a claim is made against Alloy due to a hidden defect in the franchisee's facility, the franchisee will be responsible for covering Alloy's costs. Alloy retains the right to select its own legal counsel to represent its interests in such claims, and the franchisee will bear the cost of this legal representation.
This obligation extends to claims beyond just latent defects, encompassing those related to personal injury, property damage, or the franchisee's employment practices, regardless of whether Alloy's negligence contributed to the claim. The franchisee's responsibility to cover Alloy's legal costs could potentially create a significant financial burden, especially if the claim is substantial or involves protracted litigation.
This type of indemnification clause is relatively standard in franchise agreements. It aims to protect the franchisor from liabilities arising from the franchisee's operations. However, franchisees should carefully consider the potential financial implications of such a broad indemnification obligation and assess their insurance coverage to ensure they are adequately protected against potential claims.