Are a Chocolate Bash franchisee's payment obligations dependent on CB Franchising's performance?
Chocolate_Bash Franchise · 2024 FDDAnswer from 2024 FDD Document
Franchising within 15 days after invoice by CB Franchising accompanied by reasonable documentation.
4.10 Payment Terms.
- (a) Method of Payment. Franchisee shall pay the Royalty Fee, Marketing Fund Contribution, and any other amounts owed to CB Franchising by pre-authorized bank draft or in such other manner as CB Franchising may require. Franchisee shall comply with CB Franchising's payment instructions.
- (b) Calculation of Fees. Franchisee shall report monthly Gross Sales to CB Franchising by the 5th day of the following month. If Franchisee fails to report monthly Gross Sales, then CB Franchising may withdraw estimated Royalty Fees and Marketing Fund Contributions equal to 125% of the last Gross Sales reported to CB Franchising, and the parties will true-up the actual fees after Franchisee reports Gross Sales. Franchisee acknowledges that CB Franchising has the right to remotely access Franchisee's point-of-sale system to calculate Gross Sales.
- (c) Late Fees and Interest. If Franchisee does not make a payment on time, Franchisee shall pay a $100 "late fee
Source: Item 22 — CONTRACTS (FDD pages 38–39)
What This Means (2024 FDD)
Based on the 2024 Franchise Disclosure Document, a Chocolate Bash franchisee's payment obligations are not directly dependent on CB Franchising's performance. The franchisee is obligated to pay royalty fees, marketing fund contributions, and other amounts owed to CB Franchising, irrespective of CB Franchising's overall performance.
Specifically, the franchisee must report monthly gross sales and make payments by pre-authorized bank draft or another method required by Chocolate Bash. If the franchisee fails to report monthly gross sales, Chocolate Bash can withdraw estimated royalty fees and marketing fund contributions equal to 125% of the last gross sales reported. The franchisee is also subject to late fees of $100 and interest on unpaid amounts at a rate of 18% per year if payments are not made on time.
Furthermore, the franchisee is required to contribute to the Marketing Fund, which Chocolate Bash uses for marketing, advertising, and public relations. These expenditures from the Marketing Fund do not need to be proportionate to the franchisee's contributions or provide any direct or indirect benefit to the franchisee. The Marketing Fund is spent at Chocolate Bash's sole discretion, and Chocolate Bash has no fiduciary duty regarding the Marketing Fund. This means that the franchisee's obligation to contribute to the Marketing Fund is not tied to the direct benefits or performance resulting from the fund's activities.
In summary, the franchisee's financial obligations to Chocolate Bash are based on factors like gross sales and adherence to payment terms, rather than being contingent on Chocolate Bash's overall business performance or the direct benefits derived from specific franchisor activities like marketing.