Under what circumstances related to bankruptcy might Bft terminate 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.).
The Franchise Agreement and Multi-Unit Agreement require binding arbitration. The arbitration will be conducted at our then current principal place of business (currently Irvine, California) or another location that we designate with the costs being borne as provided in the Franchise Agreement and Multi-Unit Agreement. Prospective developers and franchisees are encouraged to consult private legal counsel to determine the applicability of California and federal laws (such as Business and Professions Code Section 20040.5, Code of Civil Procedure Section 1281, and the Federal Arbitration Act) to any provisions of the Franchise Agreement and Multi-Unit Agreement restricting venue to a forum outside the State of California.
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 57–66)
What This Means (2025 FDD)
According to the 2025 FDD, Bft's Franchise Agreement and Multi-Unit Agreement provide for termination upon bankruptcy of the franchisee or developer. However, the FDD also states that this provision may not be enforceable under federal bankruptcy law (11 U.S.C.A Section 101 et seq.).
This means that while Bft includes a clause allowing them to terminate the agreement if a franchisee or developer declares bankruptcy, federal law might override this clause, potentially preventing Bft from terminating the agreement solely based on the bankruptcy filing. This is a critical consideration for prospective franchisees, as it highlights a legal complexity where the franchisor's stated rights may be limited by federal statutes.
For prospective Bft franchisees, it is essential to seek legal counsel to fully understand the interplay between the franchise agreement's termination clauses and federal bankruptcy law. This will help them assess the risks and protections available to them in the event of financial distress leading to bankruptcy. The FDD explicitly encourages prospective developers and franchisees to consult with legal counsel to determine the applicability of California and federal laws to any provisions of the Franchise Agreement and Multi-Unit Agreement.