Under the Cream franchise agreement, can a franchisee withhold payments owed to Cream due to alleged nonperformance by Cream?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
D. NO WITHHOLDING OF PAYMENTS DUE TO US.
You may not withhold payment of any amounts owed to us on the grounds of our alleged nonperformance of any of our obligations under this Agreement or for any other reason, and you specifically waive any right you may have at law or in equity to offset any funds you may owe us or to fail or refuse to perform any of your obligations under this Agreement.
Source: Item 23 — RECEIPTS (FDD pages 61–192)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, franchisees are explicitly prohibited from withholding payments owed to Cream, even if they believe Cream is not fulfilling its obligations under the franchise agreement. The FDD states that franchisees waive any legal or equitable right to offset funds or refuse to perform their obligations based on Cream's alleged nonperformance or any other reason. This means a franchisee cannot deduct amounts they believe are owed to them from royalty payments or other fees due to Cream.
This policy is common in franchising, as it ensures a consistent revenue stream for the franchisor, which is essential for maintaining brand standards and providing support services. However, it places a significant financial risk on the franchisee, who must continue to pay all required fees regardless of any perceived shortcomings in Cream's performance. Franchisees are still able to pursue legal or arbitration proceedings, but they must do so while remaining current on all payments.
The franchisee's only recourse is to continue making all payments and pursue legal or arbitration proceedings to resolve the dispute. This could create a significant financial burden for the franchisee, especially if the alleged nonperformance by Cream is causing financial hardship. Therefore, prospective Cream franchisees should carefully consider this provision and ensure they have sufficient financial resources to cover potential disputes. They should also seek legal counsel to fully understand their rights and obligations under the franchise agreement.
It is important for potential Cream franchisees to understand that waiving the right to withhold payments does not mean they are without recourse if Cream fails to meet its obligations. Franchisees retain the right to pursue legal action or arbitration to seek damages or other remedies for Cream's alleged nonperformance. However, they must do so while continuing to meet their financial obligations to Cream, which can be a significant challenge.