Under what circumstances is a Chatime developer required to pay or reimburse the franchisor for costs?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
before and one hour after normal Business Hours, inspect the premises of any Outlet for the purpose of:
(a) Monitoring compliance by Developer of its operational obligations under the terms of this Agreement; and
(b) Ensuring compliance by Developer of its financial obligations under this Agreement and for the purpose of verifying any financial information provided by Developer to Franchisor.
(3) Franchisor may conduct an audit of Developer's books of account (and, if applicable, the books of account maintained by Franchisees). The audit may be performed by independent accountants appointed by Franchisor.
(4) If any such audit discloses an understatement of the initial and/or recurring fees received by Developer under the Franchise Agreements, Developer 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 Developer 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 Developer for the period of any audit is determined by any such audit or inspection to be greater than 2%, Developer 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 4.2(6) will be in addition to all other remedies and rights of Franchisor under this Agreement or under any applicable law.
4.3 Governmental Approvals
(1) Developer agrees to execute any and all instruments and documents, render such assistance, and otherwise cooperate with Franchisor, in order to obtain all governmental approvals Franchisor is required to obtain or which, in the opinion of Franchisor, are necessary at any time during the Initial Term, in the opinion of Franchisor, to comply with any Legal Requirements.
4.4 Compliance with Legal Requirements
- (1) Developer must secure and maintain in force in its name all required licenses, permits, and certificates relating to Developer's obligations under this Agreement. For the avoidance of doubt, Developer must ensure that it is qualified to import the Products, clear the customs and do anything relating thereto at its Cost.
- (2) All advertising by Developer must be completely factual and conform to high standards of ethical advertising.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, a developer may be required to pay or reimburse Chatime for costs in several specific circumstances. If an audit reveals an understatement of initial or recurring fees received by the developer, the developer must pay Chatime the fees due on the understated amount, plus interest. Additionally, if the understatement of fees is greater than 2% or if the audit was required due to the developer's failure to provide necessary reports or information, the developer must reimburse Chatime for the cost of the audit, including legal, accounting, travel, and accommodation fees.
Furthermore, if any of the developer, their affiliates, franchisees, guarantors, or their interested parties breach clause 7.2 or 7.3 of the agreement, the developer must account for and pay to Chatime all compensation, profits, monies, accruals, increments, or other benefits derived or received as a result of such breach. If Chatime operates and manages the Development Business, the developer must bear any losses incurred during this period and reimburse such losses to Chatime upon demand.
In the event that laws change, or new laws are introduced, or courts interpret laws differently, resulting in Chatime having to pay a tax, duty, excise, or levy (other than income tax) on amounts received from the developer, developer affiliate, and a Chatime store, the developer may be responsible for covering these additional costs. Lastly, if a developer seeks to assign their interest in the Development Agreement to a new party, the developer must pay Chatime the Transfer Fee before the assignment can occur.