To what extent will Bft enforce the termination provision related to bankruptcy in the Multi-Unit Agreement and Franchise Agreement?
Bft Franchise · 2025 FDDAnswer from 2025 FDD Document
The Franchise Agreement and Multi-Unit Agreement provides for termination upon bankruptcy. This provision may not be enforceable under federal bankruptcy law (11 U.S.C.A Section 101 et seq.).
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 57–66)
What This Means (2025 FDD)
According to Bft's 2025 Franchise Disclosure Document, the enforceability of the termination provision upon bankruptcy in both the Franchise Agreement and Multi-Unit Agreement is uncertain. Specifically, the FDD states that the provision allowing Bft to terminate the agreement if a franchisee declares bankruptcy "may not be enforceable under federal bankruptcy law (11 U.S.C.A Section 101 et seq.)." This means that a court overseeing a bankruptcy case might not allow Bft to terminate the agreement solely based on the franchisee's bankruptcy filing.
This acknowledgment is important for prospective Bft franchisees because it highlights a legal uncertainty. While the standard agreement might include a clause allowing termination in case of bankruptcy, federal law could override this provision, potentially protecting the franchisee's business during financial distress. This does not guarantee protection, but it introduces an element of legal risk for Bft in enforcing such a termination.
It is important to note that the FDD recommends that prospective developers and franchisees seek independent legal counsel to fully understand the implications of federal and state laws, including bankruptcy law, on the franchise agreement. This is especially crucial given the complexities of bankruptcy proceedings and how they interact with franchise agreements. A lawyer can provide specific advice based on the franchisee's individual circumstances and location.
For franchisees in Maryland, a rider to the Multi-Unit Agreement further clarifies that "[t]he provision which provides for termination upon Developer's bankruptcy might not be enforceable under federal bankruptcy law (11 U.S.C. Sections 101 et seq.)." This reiterates the potential unenforceability and underscores the importance of understanding bankruptcy law's impact on the franchise agreement, especially within the context of Maryland's franchise regulations.