If an Exit franchisee breaches another Exit franchise agreement, does this constitute an event of default?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
controlled by Franchisee or by one or more of the equity holders of Franchisee, fails to pay, when due, any of its financial obligations to EXIT, Subfranchisor, other EXIT subfranchisor, or the Brokers' Council, including payments due under any promissory note executed by Franchisee pursuant to the terms of this Agreement.
(ii) Franchisee, or any entity controlled by Franchisee or by one or more of the equity holders of Franchisee, breaches any term of this Agreement, any other agreement granting an EXIT franchise,
or any rule, procedure, amendment, or supplement to this Agreement established by EXIT or Subfranchisor, including but not limited to, the Performance Standards provisions of Section 9.8 of this Agreement.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, a breach of another Exit franchise agreement by a franchisee, or any entity controlled by them or their equity holders, constitutes an event of default. Specifically, if a franchisee or an entity they control violates any term or condition of another Exit franchise agreement with the franchisor or any Exit subfranchisor, it triggers the subfranchisor's right to terminate the agreement, provided that the franchisee has an opportunity to cure the default.
This means that if an Exit franchisee operates multiple franchise locations and violates the terms of one franchise agreement, it can jeopardize all of their Exit franchises. The subfranchisor must provide notice and an opportunity to cure the breach, giving the franchisee a chance to rectify the situation and avoid termination. However, failure to cure within the specified timeframe will result in the termination of the franchise agreement.
This provision underscores the importance of adhering to all terms and conditions of every Exit franchise agreement a franchisee holds. It also highlights the interconnectedness of multiple franchise agreements under the same ownership, where a breach in one can have repercussions across the entire portfolio. Prospective franchisees should carefully review all franchise agreements and ensure they can comply with all obligations to avoid potential defaults and terminations.