Does Chatime, its affiliates, consultants, and agents have the right to inspect each Outlet?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisor, its Affiliates, consultants, and agents have the right to inspect the Outlet and the construction work from time to time during the course of construction to verify the progress of construction and Franchisee's compliance with the terms of this Agreement.
5.5 Inspections and Audits
- (1) Franchisor and its agents may at any time during normal Business Hours inspect, audit and make copies or extracts of the records and reports described in clause 5.4 and any other business records, bookkeeping and accounting records, electronic records and files, value added, sales, use, service, and income tax records and returns, and other records of The Franchised Business.
- (2) Franchisor may, at any time, during normal Business Hours and one hour before and one hour after normal Business Hours, inspect the premises of the Outlet for the purpose of:
- (a) Monitoring compliance by Franchisee of its obligations under this Agreement; and
- (b) Ensuring compliance by Franchisee of its financial obligations under this Agreement and for the purpose of verifying any financial information provided by Franchisee to Franchisor.
- (3) Franchisor may conduct an audit of Franchisee's books of account. The audit may be performed by independent accountants appointed by Franchisor. Franchisee must fully cooperate with representatives of Franchisor and independent accountants appointed by Franchisor to conduct such inspection or audit.
- (4) If any such audit discloses an understatement of the initial and/or recurring fees received by Franchisee under this Agreement, Franchisee must pay to Franchisor within 15 days after receipt of the inspection or audit report the fees due on the amount of such understatement plus interest at the rate and on the terms provided for in this Agreement from the date originally due until the date of payment.
- (5) If in Franchisor's opinion, an inspection or audit is required because of the failure of Franchisee to furnish reports, supporting records, other information or financial statements as required, or to furnish such reports, records, information or financial statements on a timely basis, or if an understatement of fees received by Franchisee for the period of any audit is determined by any such audit or inspection to be greater than 2%, Franchisee must reimburse Franchisor for the cost of such inspection or audit, including, without limitation, legal fees and accountants fees, and the travel and accommodation expenses applicable per day for employees of Franchisor.
- (6) The remedies referred to in this clause 5.5 will be in addition to all other remedies and rights of Franchisor under this Agreement or under any applicable law.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, Chatime, its Affiliates, consultants, and agents have the right to inspect the Outlet. Specifically, this right extends to inspecting the construction work during the construction phase to ensure compliance with the franchise agreement. Additionally, Chatime and its agents have the right to inspect the premises of the Outlet during normal business hours, and even one hour before and after, to monitor compliance with the agreement and verify financial information.
This inspection right allows Chatime to ensure that franchisees are adhering to the brand's standards and operational requirements. It also enables Chatime to protect its brand reputation and maintain consistency across all franchise locations. The inspection can cover various aspects of the business, including operational procedures, financial records, and overall compliance with the franchise agreement.
Furthermore, Chatime can conduct audits of the franchisee's books of account, potentially using independent accountants. Franchisees are required to fully cooperate with these inspections and audits. If an audit reveals an understatement of fees, the franchisee is responsible for paying the due fees along with interest. If the understatement exceeds 2% or if the audit was required due to the franchisee's failure to provide necessary reports, the franchisee must also reimburse Chatime for the cost of the inspection or audit, including legal and accounting fees, as well as travel and accommodation expenses for Chatime's employees.
These inspection and audit rights are typical in franchising, allowing franchisors to maintain quality control and protect their brand. However, prospective Chatime franchisees should be aware of the potential costs associated with non-compliance or discrepancies found during audits, as these can add to the overall cost of operating the franchise.