What is the Apricot Lane franchisee's obligation if an audit reveals understated payments?
Apricot_Lane Franchise · 2025 FDDAnswer from 2025 FDD Document
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- If an inspection or audit should reveal that any payments due to FRANCHISOR have been understated in any report to FRANCHISOR, then FRANCHISEE shall immediately pay to FRANCHISOR the amount understated upon demand, in addition to interest from the date such amount was due until paid, at the rate of eighteen percent (18%) per annum or the maximum rate permitted by law, whichever is lower. If an inspection or audit discloses an understatement in any report of two percent (2%) or more, FRANCHISEE shall, in addition, reimburse FRANCHISOR for any and all costs and expenses connected with the inspection or audit (including, without limitation, reasonable accounting and attorneys' fees). The foregoing remedies shall be in addition to any other remedies FRANCHISOR may have.
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- FRANCHISEE acknowledges that nothing contained herein constitutes FRANCHISOR's agreement to accept any payments after same are due or a commitment by FRANCHISOR to extend credit to or otherwise finance FRANCHISEE's operation of the Franchised Business. Further, FRANCHISEE acknowledges that its failure to pay all amounts when due shall constitute a material default for which FRANCHISOR may (but is not obligated to) terminate this Agreement.
Source: Item 23 — RECEIPTS (FDD pages 51–222)
What This Means (2025 FDD)
According to Apricot Lane's 2025 Franchise Disclosure Document, if an audit reveals that a franchisee has understated payments due to the franchisor, the franchisee must immediately pay the understated amount upon demand. Additionally, the franchisee will be charged interest on the underpaid amount from the date it was originally due until it is paid. The interest rate will be eighteen percent (18%) per annum, or the maximum rate permitted by law, whichever is lower.
Furthermore, if the understatement in any report is two percent (2%) or more, the Apricot Lane franchisee is also responsible for reimbursing the franchisor for all costs and expenses associated with the inspection or audit. These costs may include, but are not limited to, reasonable accounting and attorneys' fees. It is important to note that these remedies are in addition to any other legal options the franchisor may pursue.
The FDD also clarifies that the franchisor's acceptance of late payments or extending credit to finance the franchisee's business is not implied. Failure to pay all amounts when due constitutes a material default, which may lead to the termination of the franchise agreement, although the franchisor is not obligated to take this action. This underscores the importance of accurate reporting and timely payments to maintain a good standing with Apricot Lane and avoid potential penalties or termination of the franchise agreement.