What happens to the Exit franchise agreement if the franchisee misuses escrow or trust funds?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
itors, if Franchisee or a guarantor of this Agreement is subject to the action.
- (vi) Franchisee or a guarantor of this Agreement dies or becomes Permanently Disabled, or if Franchisee or a guarantor is a corporation, limited liability company or other entity other than an individual, such Franchise or guarantor dissolves.
- (vii) Misuse of escrow or trust funds by Franchisee.
- (viii) Violation of the In-Term Covenant Not To Compete provisions described in Section 21.1 of this Agreement.
16.2. Remedies
- (A) (i) Upon the occurrence of any of the Events of Default described in Section 16.1(A) (except Section 16.1(A)(i)), Subfranchisor may terminate and cancel this Agreement upon thirty (30) days' prior written notice to Franchisee. The notice shall demand immediate cure of the Event(s) of Default and shall advise Franchisee that if the Event of Default specified in the notice is not cured within thirty (30) days after the date of the notice, all rights of Franchisee under this Agreement shall be cancelled and terminated without further notice.
- (ii) Upon the occurrence of an Event of Default described in Section 16.1(A)(i), Subfranchisor may terminate and cancel this Agreement upon thirty (30) days' prior written notice to Franchisee. The notice shall demand immediate cure of the Event of Default and advise Franchisee that if the Event of Default specified in the notice is not cured within ten (10) days, all rights of Franchisee under this Agreement shall be cancelled and terminated without further notice 30 days from the date of the default notice.
- (iii) Upon the occurrence of any of the Events of Default described in Section 16.1(B), or upon the occurrence of any default that cannot be cured, Subfranchisor may terminate and cancel this Agreement, without providing Franchisee any opportunity to cure, effective immediately upon notice to Franchisee.
- (iv) If termination of this Agreement due to Franchisee's breach thereof or due to the commencement with respect to one or more of Franchisee's bankruptcy or similar proceedings, or expiration of this Agreement is precluded by operation of the bankruptcy laws, then Subfranchisor may terminate this Agreement unless Franchisee immediately and fully compensates Subfranchisor for any such breach or provides Subfranchisor with adequate assurance of future performance of this agreement. For purposes of this paragraph, full compensation shall include full payment of any losses suffered by Subfranchisor due to Franchisee's actions or inaction, and adequate assurances or prompt and full compensation shall include, at a minimum, immediate presentation to Subfranchisor by Franchisee of an irrevocable letter of credit in an amount sufficient for full compensation of Subfranchisor (as defined above), issued to the account of Franchisee by a commercial bank, payable to Subfranchisor, at sight, within thirty (30) days from the date thereof, upon presentation of any affidavit signed by Subfranchisor stating that Subfranchisor is entitled to payment pursuant to this Agreement.
- (B) Termination of this Agreement by Subfranchisor shall not terminate any monetary obligations owed by Franchisee to EXIT, Subfranchisor or the Brokers' Council. Termination of this Agreement by Subfranchisor shall not be an exclusive remedy and shall not in any way affect the rights of EXIT or Subfranchisor to receive, or collect fees or other amounts payable by Franchisee under this Agreement, to enforce the provisions of this Agreement against Franchisee, to sue for damages, seek and obtain ex parte injunctive relief, to pursue any other equitable remedy for breach of this Agreement by Franchisee or otherwise constitute a waiver of any of Subfranchisor's other rights upon the occurrence of an Event of Default. Subfranchisor shall not be obligated following any such termination or cancellation, to refund any amount previously paid by Franchisee under the terms of this Agreement.
- (C) Notwithstanding the above, if Franchisee fails to correct an alleged breach of this Agreement within the applicable time period after receipt of written notice from Subfranchisor, Subfranchisor will also have the right, upon written notice to Franchisee, to: (1) terminate the territorial exclusivity of the Protected Territory;
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, misusing escrow or trust funds constitutes an event of default that can lead to the termination of the franchise agreement. Specifically, Exit can terminate the agreement after providing notice to the franchisee. However, unlike some other default events, the franchisee does not have an opportunity to cure this default. This means that upon discovering the misuse of funds, Exit can immediately begin the termination process without giving the franchisee a chance to rectify the situation.
This policy underscores the critical importance Exit places on the proper handling of financial matters, particularly escrow and trust funds. These funds are held on behalf of clients or third parties, and their misuse can have severe legal and financial repercussions, damaging Exit's reputation and potentially exposing the franchisor to liability. The immediate termination clause reflects the severity of this type of breach and the need to protect the integrity of the Exit brand.
For a prospective Exit franchisee, this highlights the need for meticulous financial management and strict adherence to all regulations and guidelines regarding escrow and trust accounts. Franchisees must ensure they have robust internal controls and training programs in place to prevent any misuse of these funds. Understanding this clause is crucial, as any transgression, intentional or not, could result in the immediate loss of the franchise. This is stricter than many franchise agreements, which often allow a cure period for financial defaults.
In summary, Exit franchisees must exercise extreme caution and diligence in managing escrow and trust funds. The absence of a cure period for misuse of these funds means that any instance of misuse can lead to immediate termination of the franchise agreement, making it imperative for franchisees to prioritize compliance and ethical financial practices.