How quickly must the letter of credit be payable to the Exit Subfranchisor?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
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.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, if a franchisee's actions or inaction cause losses to the subfranchisor, the franchisee must provide adequate assurances or prompt compensation. This includes presenting an irrevocable letter of credit to the subfranchisor.
The letter of credit must be issued by a commercial bank in the franchisee's name and be payable to the subfranchisor. The letter of credit must be payable 'at sight' within thirty (30) days from the date of the letter.
The subfranchisor can present an affidavit stating they are entitled to payment under the franchise agreement to access the funds. This requirement ensures the subfranchisor has immediate access to funds to cover losses caused by the franchisee's actions or inactions, providing a financial safety net for the subfranchisor.