Can an Ella Cafe franchisee offset, credit, or deduct from their royalty fee payments?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
- (g) Obligations Independent; No Set-Off.
The obligations of Franchisee to pay to Franchisor any fees or amounts described in this Agreement are not dependent on Franchisor' performance and are independent covenants by Franchisee.
Franchisee shall make all such payments without offset or deduction.
Withholding royalties or any other amounts due Franchisor is a material breach of this Agreement.
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, franchisees are explicitly prohibited from offsetting or deducting any amounts from their payments to Ella Cafe. The FDD states that the franchisee's obligation to pay fees is independent of Ella Cafe's performance and constitutes a separate agreement. This means that franchisees cannot withhold payments, even if they believe Ella Cafe has not fulfilled its obligations.
This policy is reinforced by the statement that withholding royalties or any other amounts due to Ella Cafe is considered a material breach of the franchise agreement. A material breach can lead to serious consequences, including termination of the franchise agreement. This underscores the importance of making all payments fully and on time, regardless of any disputes or issues the franchisee may be experiencing.
The FDD also specifies that Ella Cafe has the right to apply any payment received from the franchisee to any obligation and in any order it determines, irrespective of any designation made by the franchisee. This gives Ella Cafe significant control over how payments are allocated, further limiting the franchisee's ability to direct funds to specific obligations or offset them against other potential credits or disputes. This is a fairly standard practice in franchising, as it protects the franchisor's revenue stream and ensures consistent payments.