For Checkersrallys franchises in California, what is the potential issue with the Franchise Agreement and Development Agreement providing for termination upon bankruptcy?

According to Checkersrallys's 2025 Franchise Disclosure Document, a potential issue exists for franchisees in California regarding the termination clauses in the Franchise Agreement and Development Agreement related to bankruptcy. Specifically, both agreements contain provisions that allow Checkersrallys to terminate the agreement if the franchisee declares bankruptcy. However, the FDD indicates that this type of provision may not be enforceable under federal bankruptcy law, specifically citing 11 U.S.C.A. Sec. 101 et seq. This means that a Checkersrallys franchisee's bankruptcy might not automatically lead to the termination of their franchise agreement, as federal law could override the contractual terms.

This disclosure is important for prospective Checkersrallys franchisees in California because it highlights a potential conflict between the franchise agreement and federal law. While the agreement states that bankruptcy can lead to termination, federal law might protect the franchisee in such a situation. This could provide some security for franchisees facing financial difficulties, as it may prevent Checkersrallys from immediately terminating the agreement and taking over the franchise.

However, franchisees should not rely solely on this disclosure. Bankruptcy law is complex, and the enforceability of such provisions can depend on the specific circumstances of the bankruptcy case. Therefore, it is crucial for prospective Checkersrallys franchisees in California to consult with legal counsel to fully understand their rights and obligations in the event of bankruptcy. This consultation should clarify the extent to which federal law protects them and what steps they can take to safeguard their investment. It is also important to note that this disclosure only addresses the enforceability of the termination provision; other aspects of the franchise agreement could still be affected by a franchisee's bankruptcy.