Does Desi District Franchise Group's action of discontinuing supplies to a defaulting franchisee constitute a breach of the Desi District agreement?
Desi_District Franchise · 2024 FDDAnswer from 2024 FDD Document
default on behalf of Franchisee, without any liability to Franchisee.
Franchisee shall reimburse Desi District Franchise Group for its costs and expenses (including the allocation of any internal costs) for such action, plus 10% as an administrative fee.
- 11.4 Right to Discontinue Supplies Upon Default. While Franchisee is in default or breach of this Agreement, Desi District Franchise Group may (i) require that Franchisee pay cash on delivery for products or services supplied by Desi District Franchise Group, (ii) stop selling or providing any products and services to Franchisee, and/or (iii) request any third-party vendors to not sell or provide products or services to Franchisee. No such action by Desi District Franchise Group shall be a breach or constructive termination of this Agreement, change in competitive circumstances or similarly characterized, and Franchisee shall not be relieved of any obligations under this Agreement because of any such action. Such rights of Desi District Franchise Group are in addition to any other right or remedy available to Desi District Franchise Group.
Source: Item 22 — CONTRACTS (FDD page 52)
What This Means (2024 FDD)
According to Desi District's 2024 Franchise Disclosure Document, Desi District Franchise Group has the right to discontinue supplying a franchisee who is in default or breach of their agreement, and this action will not be considered a breach of the agreement by Desi District. Specifically, Desi District Franchise Group can require the franchisee to pay cash on delivery for products or services, stop selling or providing any products and services to the franchisee, and/or request that third-party vendors not sell or provide products or services to the franchisee.
This provision protects Desi District from potential losses or liabilities associated with supporting a franchisee who is not meeting their obligations. It also ensures that Desi District can maintain the standards and reputation of the franchise system by preventing a defaulting franchisee from continuing to operate under the Desi District brand without adhering to the required standards.
For a prospective Desi District franchisee, this means that if they fail to meet their financial or operational obligations, Desi District has the right to cut off supplies, which could severely impact the franchisee's ability to operate the business. This clause underscores the importance of adhering to the franchise agreement and maintaining a strong financial standing to avoid being declared in default and losing access to essential supplies and support from Desi District. Franchisees should be aware that Desi District Franchise Group will also charge the franchisee for costs and expenses, plus 10% as an administrative fee, for discontinuing supplies.