What is the dependency between the MUDA and the individual franchise agreements for each Chocolate Fish Coffee business?
Chocolate_Fish_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
- 2. Form of Agreement. For Store #1, Franchisee and Chocolate Fish Franchising have executed the Franchise Agreement simultaneously with this MUDA. For each additional Chocolate Fish Coffee franchise, Franchisee shall execute Chocolate Fish Franchising's thencurrent standard form of franchise agreement no later than three business days after Franchisee leases or acquires a location. This MUDA does not give Franchisee the right to construct, open, or operate a Chocolate Fish Coffee business, and Franchisee acknowledges that Franchisee may construct, open, and operate each Chocolate Fish Coffee business only pursuant to a separate
franchise agreement executed pursuant to this MUDA for each such Chocolate Fish Coffee business.
3.
Development Area.
Franchisee shall locate each Chocolate Fish Coffee business it develops under this MUDA within the following area: (the "Development Area").
Franchisee has exclusive rights to develop, open or operate Chocolate Fish Coffee businesses in the Development Area while this MUDA is effective.
- **4.
Default and Termination.** Chocolate Fish Franchising may terminate this MUDA by giving notice to Franchisee, without opportunity to cure, if any of the following occur:
(i) Franchisee fails to satisfy the development schedule; or
(ii) Chocolate Fish Franchising has the right to terminate any franchise agreement between Chocolate Fish Franchising and Franchisee (or any affiliate thereof) due to Franchisee's default thereunder (whether or not Chocolate Fish Franchising actually terminates such franchise agreement).
**5.
Limitation of Liability.** Franchisee's commitment to develop Chocolate Fish Coffee businesses is in the nature of an option only.
If Chocolate Fish Franchising terminates this MUDA for Franchisee's default, Franchisee shall not be liable to Chocolate Fish Franchising for lost future revenues or profits from the unopened Chocolate Fish Coffee businesses.
Franchisee may terminate this MUDA at any time.
- **6.
Conditions.** Franchisee's right to develop each Chocolate Fish Coffee franchise after the Store #1 is subject to the following:
(i) Franchisee must possess sufficient financial and organizational capacity to develop, open, operate, and manage each additional Chocolate Fish Coffee business, in the reasonable judgment of Chocolate Fish Franchising, and
(ii) Franchisee must be in full compliance with all brand requirements at its open Chocolate Fish Coffee businesses, and not in default under any Franchise Agreement or any other agreement with Chocolate Fish Franchising.
Source: Item 23 — RECEIPTS (FDD pages 41–119)
What This Means (2024 FDD)
According to Chocolate Fish Coffee's 2024 Franchise Disclosure Document, a Multi-Unit Development Agreement (MUDA) does not automatically grant the franchisee the right to open and operate multiple Chocolate Fish Coffee businesses. Instead, the MUDA requires the franchisee to enter into a separate franchise agreement for each individual location they plan to develop. The MUDA and the initial franchise agreement for the first store are executed simultaneously. For each additional Chocolate Fish Coffee franchise, the franchisee must execute Chocolate Fish Coffee's current standard franchise agreement within three business days of leasing or acquiring a location.
This means that while the MUDA grants the franchisee the exclusive right to develop Chocolate Fish Coffee businesses within a specific area, each location is still subject to the terms and conditions of a separate franchise agreement. Chocolate Fish Franchising retains control over the approval of each new location and the franchisee's compliance with brand standards. The MUDA ensures the franchisee's commitment to a development schedule, but the individual franchise agreements govern the operation of each Chocolate Fish Coffee business.
Chocolate Fish Franchising can terminate the MUDA if the franchisee fails to meet the development schedule or if Chocolate Fish Franchising has the right to terminate any individual franchise agreement due to the franchisee's default. This clause highlights the interconnectedness of the agreements, as a default on one franchise agreement can impact the entire multi-unit development agreement. However, the franchisee's commitment to develop is treated as an option, limiting liability for lost future revenues from unopened locations if the MUDA is terminated due to the franchisee's default.
Furthermore, the franchisee's right to develop additional Chocolate Fish Coffee franchises after the first store is contingent upon having sufficient financial and organizational capacity, as determined by Chocolate Fish Franchising, and being in full compliance with all brand requirements at its open Chocolate Fish Coffee businesses, without any defaults under any existing agreements with Chocolate Fish Franchising. This condition ensures that the franchisee remains a suitable operator for multiple units and maintains the brand's standards across all locations.