Does the Exit subfranchisor have an obligation to indemnify the franchisee against claims arising from the subfranchisor's actions?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
- (B) Under no circumstances shall either party be liable for any act, omission, contract, debt, or other obligation of the other party. Franchisee shall indemnify defend (with legal counsel reasonably acceptable to the indemnitee) and hold Subfranchisor, EXIT and their Affiliates, officers, directors, employees, and officials harmless against any such claim and the cost (including reasonable attorneys' fees) of responding to, defending, settling or paying each such claim arising, directly or indirectly, from, as a result of, or in connection with Franchisee's operation of the Franchisee's business during and after the term of this Agreement. This indemnification shall specifically include claims from franchisees relating to all services which Franchisee has agreed or subsequently agrees or undertakes to perform on Subfranchisor's behalf. Subfranchisor shall indemnify and save Franchisee harmless against any claim arising, directly or indirectly, from or as a result of Subfranchisor's acts, omissions, contracts, debts, or obligations, and against the cost of defending against any such claim. Franchisees have no obligation to indemnify or hold harmless an indemnified party for losses to the extent that they are determined to have
been caused solely and directly by the indemnified party's gross negligence or recklessness, willful misconduct, strict liability, or fraud.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the subfranchisor is obligated to indemnify the franchisee against claims that arise directly or indirectly from the subfranchisor's actions, omissions, contracts, debts, or obligations. This obligation extends to covering the costs of defending against any such claims. This means that if a third party sues the franchisee due to something the subfranchisor did, the subfranchisor is responsible for covering the franchisee's legal costs and any resulting damages.
However, the franchisee has no obligation to indemnify or hold harmless an indemnified party for losses to the extent that they are determined to have been caused solely and directly by the indemnified party's gross negligence or recklessness, willful misconduct, strict liability, or fraud. This creates a balanced approach where each party is accountable for their own actions and inactions.
This type of indemnification clause is relatively standard in franchise agreements, as it aims to protect franchisees from liabilities arising from the franchisor's or subfranchisor’s conduct. It is important for prospective Exit franchisees to carefully review this section of the franchise agreement with legal counsel to fully understand the scope of the indemnification and their rights and responsibilities.