Does the indemnity obligation of a Desi District franchisee continue after the franchise agreement ends?
Desi_District Franchise · 2024 FDDAnswer from 2024 FDD Document
- 16.1 Indemnity. Franchisee shall indemnify and defend (with counsel reasonably acceptable to Desi District Franchise Group) Desi District Franchise Group, its parent entities, subsidiaries and affiliates, and their respective owners, directors, officers, employees, agents, successors and assignees (collectively, "Indemnitees") against all Losses in any Action by or against Desi District Franchise Group and/or any Indemnitee directly or indirectly related to, or alleged to arise out of, the operation of the Business. Notwithstanding the foregoing, Franchisee shall not be obligated to indemnify an Indemnitee from Actions arising as a result of any Indemnitee's intentional misconduct or negligence. Any delay or failure by an Indemnitee to notify Franchisee of an Action shall not relieve Franchisee of its indemnity obligation except to the extent (if any) that such delay or failure materially prejudices Franchisee. Franchisee shall not settle an Action without the consent of the Indemnitee. This indemnity will continue in effect after this Agreement ends.
Source: Item 22 — CONTRACTS (FDD page 52)
What This Means (2024 FDD)
According to Desi District's 2024 Franchise Disclosure Document, the franchisee's obligation to indemnify Desi District continues even after the franchise agreement ends. Specifically, Article 16.1 states that the indemnity provision remains in effect after the agreement terminates. This means that even after the franchise agreement expires or is terminated, the franchisee may still be responsible for covering losses related to the operation of the business.
This obligation requires the franchisee to defend Desi District Franchise Group against losses in any action related to the operation of the Desi District business. However, the franchisee is not obligated to indemnify Desi District for actions arising from the franchisor's intentional misconduct or negligence. If Desi District delays notifying the franchisee of an action, it only relieves the franchisee of their indemnity obligation if the delay materially prejudices the franchisee.
This extended liability is a significant consideration for prospective franchisees. It means that even after ceasing operations, a former Desi District franchisee could face financial responsibility for issues that arose during their time in business. Franchisees should carefully consider this long-term obligation and ensure they have adequate insurance coverage and risk management strategies in place to mitigate potential future claims. Franchisees should also seek legal counsel to fully understand the scope and implications of the indemnity clause.