Is Chatime obligated to remedy a franchisee's failure to perform obligations under the franchise agreement?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
(3) Franchisee's Option pursuant to clause 2.6(2) is subject to all of the following conditions being satisfied:
(a) Franchisee has substantially complied with all material provisions of this Agreement throughout the Initial Term.
(b) At the date of giving Franchisor notice of its intention to exercise the Option and as at the end of the Initial Term, there is no outstanding breach of this Agreement or any Collateral Agreement which has not been remedied.
Pending the appointment and training of a new Managing Owner or Operating Manager or if, in our judgment, the Franchised Business is not being managed properly, we have the right, but not the obligation, to appoint a manager for the Franchised Business and require you to pay in the manner described in clause 14.
9.8 Disgorgement
In addition to all other remedies and rights of Franchisor under this Agreement, if any of Franchisee, Guarantor, or their Interested Parties breaches clause 9.2 or 9.3, Franchisee must account for and pay to Franchisor all compensation, profits, monies, accruals, increments, or other benefits derived or received as a result of any such breach.
10 Indemnity and Limitation of Liability
10.1 Indemnity
- (1) Franchisee Parties indemnify Franchisor and each of its Affiliates (Chatime Group) against all:
- (a) Losses incurred by the Chatime Group;
- (b) Liabilities incurred by the Chatime Group; and
- (c) All Legal Costs and other Costs and expenses incurred by the Chatime Group in connection with a demand, action, arbitration, or other proceeding (including mediation, compromise, out of court settlement or appeal),
arising directly or indirectly as a result of or in connection with:
- (d) A breach by Franchisee Parties of this Agreement or any Collateral Agreement;
- (e) Any injury to, or loss of property of, any person in or on premises from which the business is conducted;
- (f) Franchisee's taxes, liabilities or Costs of The Franchised Business;
- (g) Any negligent or willful act or omission of Franchisee, its employees, agents, servants, or contractors; and
- (h) Any warranty, promise, or representation made by Franchisee Parties or any employee, agent, or other person acting on behalf of Franchisee Parties being incomplete, inaccurate, or misleading.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
The 2025 Chatime Franchise Disclosure Document does not explicitly state that Chatime is obligated to remedy a franchisee's failure to perform their obligations under the franchise agreement. However, the document does outline certain conditions and circumstances related to a franchisee's performance and potential breaches of the agreement.
Specifically, the FDD states that a franchisee's option to enter into a new franchise agreement for a New Term is contingent upon the franchisee having substantially complied with all material provisions of the existing agreement throughout the Initial Term and that there is no outstanding breach of the agreement or any Collateral Agreement which has not been remedied at the time of giving notice to exercise the option or at the end of the Initial Term. This implies that franchisees are responsible for remedying any breaches themselves.
Furthermore, the agreement outlines various scenarios where Chatime may take action in response to a franchisee's failure to meet obligations, such as appointing a manager for the Franchised Business if it is not being managed properly, at the franchisee's expense. The agreement also emphasizes that franchisees must indemnify Chatime against losses, liabilities, and costs arising from breaches of the agreement or negligent acts. While Chatime isn't obligated to remedy failures, they do have rights to enforce the agreement and seek remedies for breaches, including disgorgement of profits and indemnity for losses incurred due to the franchisee's actions or inactions.