Under the Belocal franchise agreement, does the termination clause related to criminal charges apply to the franchisee's principals?
Belocal Franchise · 2025 FDDAnswer from 2025 FDD Document
. Franchisor may terminate this Agreement immediately upon written notice to Franchisee, without an opportunity to cure, if:
- (1) Franchisee abandons or otherwise ceases operations of the Franchised Business contemplated by this Agreement;
- (2) Franchisee or any Principal transfers or attempts to transfer any interest in this Agreement, Franchisee, or the Franchised Business in violation of Section 9. of this Agreement;
- (3) Franchisee or any Principal uses the Copyrighted Materials or uses or discloses the Confidential Information in violation of this Agreement;
- (4) Franchisee or any Principal fails to comply with any of the covenants set forth in this Agreement, including those in Section 7.A to 7.D. relating to confidentiality and restrictions against unfair competition and solicitation;
- (5) Franchisee or any Principal misuses or makes any unauthorized use of the System or the Marks, or impairs the goodwill associated therewith or Franchisor's rights therein; or otherwise breaches the obligations set forth in Section 8;
Source: Item 22 — CONTRACTS (FDD page 71)
What This Means (2025 FDD)
Based on the 2025 Belocal Franchise Disclosure Document, the termination clause related to certain actions, including potential criminal actions, does apply to the franchisee's principals. Specifically, Belocal can terminate the franchise agreement immediately with written notice and without opportunity to cure if the franchisee or any principal makes material misrepresentations to Belocal or breaches any warranty or representation made to Belocal.
Additionally, Belocal can terminate the agreement if the franchisee or any principal uses copyrighted materials, discloses confidential information, fails to comply with covenants related to confidentiality and unfair competition, misuses the Belocal system or marks, or impairs the associated goodwill. These stipulations extend the franchisor's protection to acts committed not only by the franchisee but also by those individuals defined as principals within the franchise agreement.
While the FDD excerpt does not explicitly mention criminal charges leading to termination, it does state that no party (including the franchisor, its predecessors, individuals identified in Item 2, or affiliates) has been convicted of a felony or pleaded nolo contendere to a felony charge, or has been convicted of a misdemeanor charge involving violations of franchise, antifraud, or securities law, fraud, embezzlement, fraudulent conversion or misappropriation of property, or unfair or deceptive practices within the last ten years. This suggests that criminal actions, particularly those related to financial impropriety or franchise law, could potentially trigger termination, especially if they involve misrepresentations or breaches of warranty.
Prospective Belocal franchisees should carefully review the definitions of 'Principal' within the franchise agreement and seek legal counsel to fully understand the implications of these termination clauses. It is important to understand what actions or omissions by a principal could lead to the termination of the franchise agreement and what recourse, if any, the franchisee has in such situations.