What happens if an Exit 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.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, misuse of escrow or trust funds by a franchisee constitutes an event of default that gives the subfranchisor the right to terminate the franchise agreement. In such a case, the subfranchisor is not required to provide the franchisee with an opportunity to cure the default. This means that upon discovering the misuse of funds, Exit can immediately terminate the agreement by providing notice to the franchisee.
This policy highlights the critical importance of proper financial management and ethical handling of funds within an Exit franchise. Escrow and trust funds are held on behalf of clients or third parties, and their misuse can lead to severe legal and financial repercussions, damaging the reputation of both the franchisee and the Exit brand. The immediate termination clause underscores the severity with which Exit views such violations.
For a prospective Exit franchisee, this means that maintaining meticulous records, adhering to all legal and ethical standards for handling escrow and trust funds, and implementing robust internal controls are essential. Franchisees should ensure they have a clear understanding of their obligations regarding these funds and seek professional advice if needed to avoid any actions that could be construed as misuse. The absence of a cure period means there is no second chance if such a violation occurs.