Under what conditions can Desi District unilaterally terminate a franchise agreement?

According to Desi District's 2024 Franchise Disclosure Document, the company can terminate a Multi-Unit Development Agreement (MUDA) under specific circumstances, without allowing the franchisee an opportunity to remedy the situation. Desi District may terminate the MUDA if the franchisee fails to adhere to the development schedule outlined in the agreement. Additionally, Desi District can terminate the MUDA if it has 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 separate franchise agreement.

This provision in the MUDA carries significant implications for potential Desi District multi-unit franchisees. Failure to meet the agreed-upon development schedule can lead to termination of the entire multi-unit agreement, potentially resulting in the loss of future development rights. Furthermore, a default on any single franchise agreement within the multi-unit structure can trigger the termination of the MUDA, even if Desi District doesn't terminate the individual franchise. This creates a scenario where the performance of one unit can impact the entire development agreement.

It is important to note that the franchisee's commitment to develop Desi District businesses is considered an option. If Desi District terminates the MUDA due to the franchisee's default, the franchisee will not be held liable for lost future revenues or profits from the unopened Desi District businesses. The franchisee also has the right to terminate the MUDA at any time. However, the franchisee's right to develop each Desi District franchise after the first store is contingent upon maintaining sufficient financial and organizational capacity, as determined by Desi District, and remaining in full compliance with all brand requirements at its open Desi District businesses, without any defaults under any agreements with Desi District.

Prospective franchisees should carefully evaluate the development schedule and ensure they have the resources and capabilities to meet the obligations. They should also understand that defaults under any agreement with Desi District, not just the MUDA, can have serious consequences for their entire multi-unit development plan. It is advisable to seek legal counsel to fully understand the implications of these termination clauses before entering into a MUDA with Desi District.