What are the Buildingstars franchisee's obligations regarding reporting (Item 9) and how does this relate to potential bankruptcy (Item 4)?
Buildingstars Franchise · 2025 FDDAnswer from 2025 FDD Document
- I.
Right to Audit.
BUILDINGSTARS may, from time to time, cause one or more complete audits to be made of the affairs and records relating to the operations of the Business.
Upon request by BUILDINGSTARS, FRANCHISEE shall make such books, records and information available to BUILDINGSTARS or its designated representative at all reasonable times for review and audit by BUILDINGSTARS at FRANCHISEE'S place of business.
If it is found that FRANCHISEE underreported Gross Sales, FRANCHISEE will reimburse BUILDINGSTARS for the amount of the Account Sales Fees, Administration Fees, Royalty Fees, and Insurance Program Fees, if applicable, that would have been billed had billings been reported accurately, plus interest on those amounts at the rate of the lesser of one and one-half percent (1-1/2%) per month or the maximum legal rate in the jurisdiction where the Business is located.
In addition, in the event that an audit by BUILDINGSTARS results in a determination that any or all of the Account Sales Fee, Administration Fees, Royalty Fees and Insurance Program Fees, if applicable, paid to BUILDINGSTARS are deficient (underpaid) by more than two percent (2%), the FRANCHISEE shall promptly pay to BUILDINGSTARS any amounts shown to be due and all costs and expenses incurred by BUILDINGSTARS in conducting the subsequent audit to determine that the FRANCHISEE is reporting correctly (not the audit which disclosed the original deficiency), including salaries of BUILDINGSTARS' representatives, travel costs, room and board and audit fees.
Nothing contained herein shall constitute an agreement by BUILDINGSTARS to accept any payments after the same are due or commitment by BUILDINGSTARS to extend credit to or otherwise finance the FRANCHISEE'S operation of the Business.
The obligations of this provision survive termination or expiration of the Agreement.
- J.
Replacement of Customer Accounts.
So long as FRANCHISEE is in compliance with the Franchise Agreement, BUILDINGSTARS will replace any initial customer account or new customer
account upon the occurrence of any of the following events, if any such event occurs within the first six (6) months from the date FRANCHISEE began servicing the lost Customer:
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- The Customer ceases to do business or is insolvent or bankrupt; or
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- The Customer moves outside of the Territory.
In such event, BUILDINGSTARS will offer FRANCHISEE a new customer account or increase an existing customer account with Monthly Contract Revenue of at least an equal dollar amount to the lost account's Monthly Contract Revenue. FRANCHISEE will not be entitled to any refund or reduction in Account Sales Fees already paid. In addition, FRANCHISEE will be required to continue to pay on the outstanding Account Sales Fee due in accordance with the Promissory Note.
What This Means (2025 FDD)
According to Buildingstars's 2025 Franchise Disclosure Document, Buildingstars has the right to audit a franchisee's business records. Upon request from Buildingstars, the franchisee must make all relevant books, records, and information available for review and audit at the franchisee's place of business. If an audit reveals that the franchisee underreported gross sales, the franchisee is responsible for reimbursing Buildingstars for the underpaid Account Sales Fees, Administration Fees, Royalty Fees, and Insurance Program Fees, if applicable, along with interest. The interest rate will be the lesser of 1.5% per month or the maximum legal rate in the jurisdiction where the business is located. These obligations survive the termination or expiration of the Franchise Agreement.
Furthermore, if an audit determines that the franchisee underpaid any of the aforementioned fees by more than 2%, the franchisee must promptly pay the deficient amounts. The franchisee is also responsible for covering all costs and expenses incurred by Buildingstars in conducting a subsequent audit to verify correct reporting. These costs include salaries of Buildingstars' representatives, travel expenses, room and board, and audit fees. However, Buildingstars is not obligated to accept late payments or extend credit to finance the franchisee's operations.
Regarding bankruptcy, Buildingstars will replace any initial or new customer account if the customer ceases business, becomes insolvent, or declares bankruptcy within the first six months of the franchisee servicing that customer, provided the franchisee is in compliance with the Franchise Agreement. In such cases, Buildingstars will offer a new customer account or increase an existing one with monthly contract revenue equal to the lost account's revenue. The franchisee will not receive any refund or reduction in Account Sales Fees already paid and must continue paying any outstanding Account Sales Fee according to the Promissory Note.
These policies protect Buildingstars from revenue loss due to franchisee underreporting and provide some support to franchisees facing customer bankruptcy, but do not relieve the franchisee of their financial obligations to Buildingstars.