Under the Carls Jr. franchise agreement, is a franchisee's inability to obtain financing considered a 'Force Majeure' event?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
As used in this Agreement, the term "Force Majeure" means any act of God, strike, lock-out or other industrial disturbance, war (declared or undeclared), riot, epidemic, fire or other catastrophe, act of any government or other third party and any other cause not within the control of the party affected thereby. Franchisee's inability to obtain financing (regardless of the reason) shall not constitute Force Majeure. If the performance of any obligation by any party under this Agreement is prevented, hindered or delayed by reason of Force Majeure, which cannot be overcome by reasonable commercial measures, the parties shall be relieved of their respective obligations (to the extent that the parties, having exercised best efforts, are prevented, hindered or delayed in such performance) during the period of such Force Majeure. The party whose performance is affected by an event of Force Majeure shall give prompt written notice of such Force Majeure to the other party by setting forth the nature thereof and an estimate as to its duration. Notwithstanding the foregoing, nothing in this Section shall permit or excuse any delay or failure to remit any payment due the other party on the due date.
Source: Item 22 — CONTRACTS (FDD pages 75–76)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, a franchisee's inability to obtain financing is explicitly excluded from being considered a 'Force Majeure' event under the franchise agreement.
This means that if a franchisee is unable to secure the necessary funding to fulfill their obligations under the agreement, such as opening the restaurant or making required payments, they cannot claim 'Force Majeure' as a valid excuse. 'Force Majeure' typically covers unforeseeable circumstances outside of a party's control, such as natural disasters or government actions. However, the Carls Jr. franchise agreement specifically stipulates that financing issues, regardless of the reason, do not fall under this category.
For a prospective Carls Jr. franchisee, this is a critical point to consider. It underscores the importance of securing solid financing commitments before signing the franchise agreement. Franchisees should conduct thorough financial planning and explore multiple funding options to mitigate the risk of being unable to meet their financial obligations. The exclusion of financing issues from 'Force Majeure' places the full responsibility on the franchisee to ensure they have sufficient capital.
This clause is not uncommon in franchise agreements, as franchisors need to maintain consistent operations and cannot afford to have franchisees default due to funding problems. Franchisees should carefully review the 'Force Majeure' clause and understand its implications, particularly regarding financial obligations. It is advisable to consult with a financial advisor and legal counsel to fully assess the risks and develop a robust financial strategy before investing in a Carls Jr. franchise.