When Chatime Franchisor operates and manages the Development Business, what happens with any losses incurred?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
12.2 Management Fees and Income Received
- (1) Developer must pay to Franchisor a reasonable management fee prescribed by Franchisor for operating and managing the Development Business and any travelling, accommodation or other expenses in relation to such operation and management.
- (2) Franchisor must account to Developer for all net income received by Franchisor while operating and managing the Development Business less a reasonable management fee prescribed by Franchisor for operating and managing the Development Business and any travelling, accommodation or other expenses in relation to such operation and management. Developer must bear any losses incurred during Franchisor's operation and management of the Development Business and pay or reimburse such losses to Franchisor upon demand.
12.3 Liability of Temporary Operation
Franchisor will not be liable to Developer in any way for anything done by Franchisor while it operates and manages the Development Business in accordance with this clause 12, except for acts or omissions arising from the gross negligence or willful misconduct of Franchisor. Developer indemnifies Franchisor and its employees and agents against all damages, sums of money, costs, charges, expenses, actions, claims, liabilities, injuries and demands made against or suffered by Franchisor, its employees and agents for the period Franchisor operates and manages the Development Business pursuant to this clause 12.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, if the Franchisor operates and manages the Development Business, the Developer must bear any losses incurred during this period. Specifically, the Developer is responsible for paying or reimbursing these losses to Chatime upon demand.
This means that even though Chatime is managing the business, the financial risk of losses falls on the Developer. This arrangement could arise in situations where the Developer is temporarily unable to manage the business, and Chatime steps in to ensure continuity.
Furthermore, Chatime is not liable to the Developer for anything done while operating and managing the Development Business, except for acts or omissions arising from gross negligence or willful misconduct. The Developer also indemnifies Chatime and its employees and agents against all damages, costs, claims, and liabilities during this period. This places a significant responsibility on the Developer to cover potential losses or liabilities incurred during Chatime's management, highlighting the importance of carefully reviewing the conditions under which Chatime might operate the Development Business and understanding the potential financial implications.