What constitutes a material breach by the Anago Subfranchisor of obligations to Unit Franchisees that could lead to termination?
Anago Franchise · 2025 FDDAnswer from 2025 FDD Document
(f) If Subfranchisor denies the Franchisor the right to inspect his or her Subfranchise Business or to audit the accounting records of his or her Subfranchise Business;
(g) If Subfranchisor, contrary to this Agreement, purports to transfer any rights or obligations under this Agreement, or any interest in Subfranchisor, to any third party without first obtaining Franchisor's prior written consent as required under this Agreement;
(h) If Subfranchisor, or any of its directors, officers or owners, discloses or divulges in any material respect the contents of the Anago Manuals or other trade secret or Confidential Information in violation of this Agreement;
(i) If Subfranchisor knowingly maintains false books or records, or knowingly submits any false reports to Franchisor or refuses to submit reports or documents as requested within a reasonable time period but not to exceed 90 days;
(j) If Franchisor has received more than three complaints from Unit Franchisees in the Area in a 12-month period, or more than two complaints from Unit Franchisees in the Area in a 6 month period that, in the reasonable discretion of Franchisor, are justified and are adversely affecting the System;
(k) If Subfranchisor fails to comply with the in-term covenants set forth in Section 10.2 of this Agreement;
(l) If Subfranchisor misuses or makes any unauthorized use of the Proprietary Marks or any other identifying characteristics of the System, or otherwise materially impairs the goodwill associated therewith or Franchisor's rights therein; or
(m) If Subfranchisor fails to comply with any provision of this Agreement on two (2) or more occasions during any consecutive six-month period or on three (3) or more occasions during any consecutive twelve-month period, regardless of whether Franchisor notified Subfranchisor of such defaults and whether the defaults were cured by Subfranchisor.
(n) If Subfranchisor fails to use the proprietary software or systems as directed by the Franchisor.
Source: Item 23 — RECEIPTS (FDD pages 62–298)
What This Means (2025 FDD)
According to Anago's 2025 Franchise Disclosure Document, several actions by the Subfranchisor can be considered a material breach of their obligations to Unit Franchisees, potentially leading to termination of the Subfranchise Agreement. These include denying Anago the right to inspect the Subfranchise business or audit accounting records, transferring rights or obligations under the agreement without Anago's prior written consent, or disclosing confidential information from the Anago Manuals. These actions directly undermine Anago's ability to oversee operations and protect its proprietary information.
Additional breaches include maintaining false books or records, submitting false reports to Anago, or refusing to submit requested reports or documents within a reasonable timeframe (not exceeding 90 days). Furthermore, if Anago receives more than three justified complaints from Unit Franchisees in the Area within a 12-month period, or more than two complaints within a 6-month period, that adversely affect the System, it can be grounds for termination. Failure to comply with in-term covenants outlined in Section 10.2 of the agreement, misusing the Proprietary Marks, or materially impairing the associated goodwill also constitute material breaches.
Finally, repeated non-compliance with any provision of the Agreement can lead to termination. Specifically, if the Subfranchisor fails to comply with any provision of the agreement on two or more occasions during any consecutive six-month period or on three or more occasions during any consecutive twelve-month period, it is considered a breach, regardless of whether Anago notified the Subfranchisor of such defaults and whether the defaults were cured. Also, failure to use the proprietary software or systems as directed by Anago is a cause for termination.
These stipulations highlight the importance of adhering to Anago's standards and maintaining transparent business practices. For a prospective Subfranchisor, understanding and avoiding these pitfalls is crucial to maintaining a successful and long-lasting relationship with Anago. It is important to note that these are not the only ways a subfranchise agreement can be terminated, and it is important to review the franchise agreement in its entirety.