Under what circumstances can Desi District terminate a franchisee's right to develop additional outlets under a MUDA?
Desi_District Franchise · 2024 FDDAnswer from 2024 FDD Document
- 4. Default and Termination. Desi District Franchise Group 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) Desi District Franchise Group has the right to terminate any franchise agreement between Desi District Franchise Group and Franchisee (or any affiliate thereof) due to Franchisee's default thereunder (whether or not Desi District Franchise Group actually terminates such franchise agreement).
- 5. Limitation of Liability. Franchisee's commitment to develop Desi District businesses is in the nature of an option only. If Desi District Franchise Group terminates this MUDA for Franchisee's default, Franchisee shall not be liable to Desi District Franchise Group for lost future revenues or profits from the unopened Desi District businesses. Franchisee may terminate this MUDA at any time.
- 6. Conditions. Franchisee's right to develop each Desi District 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 Desi District business, in the reasonable judgment of Desi District Franchise Group, and
- (ii) Franchisee must be in full compliance with all brand requirements at its open Desi District businesses, and not in default under any Franchise Agreement or any other agreement with Desi District Franchise Group.
Source: Item 12 — TERRITORY (FDD pages 38–40)
What This Means (2024 FDD)
According to Desi District's 2024 Franchise Disclosure Document, Desi District Franchise Group can terminate a Multi-Unit Development Agreement (MUDA) if the franchisee fails to meet the development schedule outlined in the agreement. Additionally, Desi District can terminate the MUDA if they have the right to terminate any existing franchise agreement with the franchisee (or their affiliate) due to a default by the franchisee, regardless of whether Desi District actually terminates that franchise agreement.
These termination rights are significant for prospective franchisees considering a MUDA with Desi District. Failure to adhere to the agreed-upon development schedule can result in the loss of the right to develop additional units. Furthermore, any default under an existing franchise agreement, even if not formally terminated, can trigger the termination of the MUDA. This interdependency between agreements highlights the importance of maintaining compliance across all aspects of the franchise relationship.
It is important to note that Desi District's FDD states that the franchisee's commitment to develop Desi District businesses is in the nature of an option only. If Desi District terminates the MUDA for the franchisee's default, the franchisee will not be liable to Desi District for lost future revenues or profits from the unopened Desi District businesses. The franchisee also has the option to terminate the MUDA at any time.
Moreover, the franchisee's right to develop each Desi District franchise after the first store is contingent upon possessing sufficient financial and organizational capacity to develop, open, operate, and manage each additional Desi District business, as determined by Desi District. The franchisee must also be in full compliance with all brand requirements at its open Desi District businesses and not be in default under any Franchise Agreement or any other agreement with Desi District.