What are some examples of non-curable defaults that could lead to termination of a Carls franchise agreement?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
| Provision | Franchise | Summary | |
|---|---|---|---|
| Agreement | |||
| c. | Requirements for you to renew or extend d. Termination by you | Section 2.B. Not Applicable | In order to renew at the end of the Initial Term you must: give timely notice; sign general release; comply with training requirements; be in good standing; not be in default under any agreement with us and our affiliates; not be in default beyond the cure period under any real estate or equipment lease or financing instrument relating to the Franchised Restaurant or any agreement with any vendor or supplier to the Franchised Restaurant; have the right to remain in possession of the Franchised Location for the Renewal Term; remodel in accordance with our then-current standards; and pay a renewal fee. You must also sign our then-current form of Franchise Agreement, the terms of which likely will differ from your original Franchise Agreement, including, without limitation, those relating to royalty fees and advertising obligations. |
| e. | Termination by us without cause | Not Applicable | |
| f. | Termination by us with cause | Section 21 | We may terminate upon default, which includes, but is not limited to, remaining in default beyond any applicable cure period under any agreement with us or our affiliates, including any Development Agreement. |
| g. "Cause" defined– curable defaults | Section 21.B. | You have 10 days to cure monetary defaults. You have 30 days to cure all other defaults except those discussed in paragraph h. below. | |
| h. "Cause" defined – non curable defaults | Sections 21.A., 21.B.(3) & 21.C. | Non-curable defaults include: closure of Franchised Restaurant for more than 5 days; insolvency; bankruptcy; execution levied on your business or property; foreclosure; material breach of covenants; transfer without our prior written consent; material misrepresentation; falsification of reports; failure to open Franchised Restaurant within 60 days after opening is authorized; imminent danger to public health or safety; loss of possession of Franchised Location; felony conviction; breach of representation or warranty; default beyond cure period under other agreements with us or our affiliates; default after receipt of 2 or more notices of default within previous 12 months; and receipt of second consecutive failing score on an inspection. |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION (FDD pages 61–66)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, there are specific defaults that, if triggered, Carls can terminate the franchise agreement without providing an opportunity for the franchisee to correct the issue. These non-curable defaults, as detailed in Section 21.A., 21.B.(3) & 21.C. of the Franchise Agreement, include circumstances that severely impact the operation, reputation, or financial stability of the franchise.
Examples of these non-curable defaults include the closure of the Franchised Restaurant for more than 5 days, indicating a significant disruption in operations. Insolvency, bankruptcy, or the execution of a levy on the franchisee's business or property also constitute non-curable defaults, reflecting severe financial distress. Foreclosure or the loss of possession of the Franchised Location are also listed as non-curable defaults.
Further, a material breach of covenants, transferring the franchise without Carls's prior written consent, or making material misrepresentations or falsifying reports are considered non-curable defaults. Failing to open the Franchised Restaurant within 60 days after authorization, posing an imminent danger to public health or safety, a felony conviction, breaching a representation or warranty, defaulting beyond the cure period under other agreements with Carls or its affiliates, defaulting after receiving two or more notices of default within the previous 12 months, and receiving a second consecutive failing score on an inspection are also non-curable defaults that can lead to immediate termination of the franchise agreement.
These stipulations highlight the importance of maintaining operational standards, financial stability, and adherence to the franchise agreement to avoid immediate termination and protect the franchisee's investment. Prospective franchisees should carefully review these conditions and ensure they have the resources and capabilities to meet these requirements.