What is the definition of 'material violation' in the context of the Crab N Spice franchise agreement?
Crab_N_Spice Franchise · 2024 FDDAnswer from 2024 FDD Document
(v) Franchisee loses possession of the Location;
(vi) Franchisee or any Owner commits a material violation of Section 7.2 (compliance with laws) or Section 13.1 (confidentiality), violates Section 13.2 (non-compete) or Article 15 (transfer), or commits any other violation of this Agreement which by its nature cannot be cured;
(vii) Franchisee abandons or ceases operation of the Business for more than five consecutive days;
(viii) Franchisee or any Owner slanders or libels CNS Franchising or any of its employees, directors, or officers;
(ix) Franchisee refuses to cooperate with or permit any audit or inspection by CNS Franchising or its agents or contractors, or otherwise fails to comply with Section 10.5 or Section 11.2;
(x) the Business is operated in a manner which, in CNS Franchising's reasonable judgment, constitutes a significant danger to the health or safety of any person, and Franchisee fails to cure such danger within 48 hours after becoming aware of the danger (due to notice from CNS Franchising or otherwise);
(xi) Franchisee has received two or more notices of default and Franchisee commits another breach of this Agreement, all in the same 12-month period;
(xii) CNS Franchising (or any affiliate) terminates any other agreement with Franchisee (or any affiliate) due to the breach of such other agreement by Franchisee (or its affiliate) (provided that termination of a Multi-Unit Development Agreement with Franchisee or its affiliate shall not give CNS Franchising the right to terminate this Agreement); or
(xiii) Franchisee or any Owner is accused by any governmental authority or third party of any act that in CNS Franchising's opinion is reasonably likely to materially and unfavorably affect the Crab N Spice brand, or is charged with, pleads guilty to, or is convicted of a felony.
Source: Item 22 — CONTRACTS (FDD pages 50–51)
What This Means (2024 FDD)
According to Crab N Spice's 2024 Franchise Disclosure Document, a 'material violation' of the franchise agreement is specifically defined within the context of conditions that could lead to the termination of the agreement. These conditions include instances where the franchisee loses possession of the restaurant location, commits a significant breach of compliance with laws or confidentiality, violates non-compete clauses or transfer restrictions, or engages in any other violation that cannot be rectified.
Additionally, a material violation occurs if the franchisee abandons the business for more than five consecutive days, slanders Crab N Spice or its personnel, refuses to cooperate with audits or inspections, or operates the business in a way that poses a significant danger to public health and safety without rectifying the issue within 48 hours of awareness. The accumulation of two or more default notices followed by another breach within a 12-month period also constitutes a material violation.
Furthermore, if Crab N Spice terminates any other agreement with the franchisee due to a breach, or if the franchisee is accused of actions likely to harm the Crab N Spice brand or is convicted of a felony, these situations are considered material violations. These stipulations are important for prospective franchisees to understand, as they outline the specific actions or inactions that could lead to the termination of their franchise agreement and the loss of their investment.