To what extent is the Maryland Amendment effective for Ella Cafe franchises?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
- In recognition of the requirements of the Maryland Franchise Registration and Disclosure Law, Md. Code Ann., Bus. Reg. §§14-201-14-233, the Franchise Agreement is amended as follows:
Sections 3.2 and 15.2 require Franchisee to sign a general release as a condition of renewal or transfer of the Franchise, such release shall exclude claims arising under the Maryland Franchise Registration and Disclosure Law.
Section 17.1 requires that the Franchise be governed by the laws of the State of Florida however, in the event of a conflict of laws to the extent required by the Maryland Franchise Registration and Disclosure Law, the laws of the State of Maryland shall prevail.
Sections 17.2 and 17.3 requires litigation to be conducted in the State of Florida; the requirement shall not limit any rights Franchisee may have under the Maryland Franchise Registration and Disclosure Law to bring suit in the State of Maryland.
Any Section of the Franchise Agreement requiring Franchisee to assent to any release, estoppel or waiver of liability as a condition of purchasing the Franchise are not intended to, nor shall they act as a, release, estoppel or waiver of any liability incurred under the Maryland Franchise Registration and Disclosure Law.
The Franchise Agreement is amended to the extent that any claims arising under the Maryland Franchise Registration and Disclosure Law must be brought within three years after the grant of the Franchise.
- Section 3.1 of the Franchise Agreement is amended to reflect the following:
"Based upon the franchisor's financial condition, the Maryland Securities Commissioner has required a financial assurance. Therefore, all initial fees and payments owed by franchisees shall be deferred until the franchisor completes its pre-opening obligations under the franchise agreement" ("Fee Deferral Requirement"). Therefore, notwithstanding anything to the contrary in this Section 3.1 of the Franchise Agreement, payment of the initial franchise fee and the preopening initial inventory and equipment package fee are due immediately at such time as when Franchisor has met its pre-opening obligations to Franchisee, and Franchisee has commenced operation of the Franchised Business.
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, the Maryland Amendment modifies the standard Franchise Agreement to comply with Maryland franchise law. The amendment acknowledges the Maryland Franchise Registration and Disclosure Law, and it specifies how certain sections of the Franchise Agreement are altered to align with Maryland law.
Specifically, any requirement for a franchisee to sign a general release as a condition of renewal or transfer excludes claims arising under Maryland franchise law. While the standard agreement dictates that Florida law governs, the amendment states that Maryland law will prevail in the event of a conflict, as required by Maryland franchise law. Similarly, although the agreement typically requires litigation to occur in Florida, the amendment ensures that this does not limit a franchisee's right to bring suit in Maryland under Maryland franchise law.
Moreover, any section requiring a franchisee to waive liability as a condition of purchasing the franchise will not act as a waiver of liability under Maryland franchise law. The amendment also stipulates that claims arising under Maryland franchise law must be brought within three years after the franchise grant. Finally, due to the franchisor's financial condition, the Maryland Securities Commissioner requires a financial assurance, deferring all initial fees and payments until Ella Cafe completes its pre-opening obligations.