What rights does Gold Star retain if a franchisee abandons or discontinues the franchise?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
- 15.5 Right of Entry; Appointment of Receiver. If FRANCHISEE is in default under the terms of this Agreement, in addition to the COMPANY's right to terminate this Agreement, and without limiting any other rights or remedies to which the COMPANY may be entitled at law or in equity, the COMPANY will have the right to take any of the following actions:
- 15.5.1 enter upon the premises of the Franchised Restaurant and exercise complete authority with respect to the operation of the Store until such time as the COMPANY determines, in its sole discretion, that FRANCHISEE has cured the default and that there is compliance with the terms of this Agreement; and FRANCHISEE agrees that a designated representative of the COMPANY may operate and control the Store, and that FRANCHISEE will pay the COMPANY for its labor costs, travel expenses, lodging and other expenses reasonably incurred by the - COMPANY in sending a representative to enforce compliance with the terms of this Agreement; or
- 15.5.2 petition any court of competent jurisdiction to appoint a receiver for the business or assets of FRANCHISEE, and FRANCHISEE agrees that it will not contest any proceeding or petition for the appointment of a receiver.
- 15.6 Liquidated Damages. If FRANCHISEE abandons or discontinues the franchise for any reason prior to the expiration of the term of this Agreement, FRANCHISEE will pay to the COMPANY as liquidated damages and not as a penalty, and in addition to but not in limitation of any other rights and remedies to which the COMPANY is entitled, an amount equal to the average monthly continuing franchise fee payments due from FRANCHISEE during the twelve months preceding the abandonment or discontinuance of the franchise, multiplied by the lesser of twenty-four or the number of months remaining in the term of this Agreement.
Source: Item 23 — Receipts (FDD pages 53–163)
What This Means (2025 FDD)
According to Gold Star's 2025 Franchise Disclosure Document, if a franchisee abandons or discontinues the franchise before the agreement's term expires, Gold Star is entitled to liquidated damages. These damages are calculated as the average monthly continuing franchise fee paid by the franchisee over the 12 months preceding the abandonment or discontinuance, multiplied by either 24 or the number of months remaining in the franchise term, whichever is less. This payment is in addition to any other rights and remedies Gold Star may have.
This provision means that a franchisee who prematurely exits the Gold Star system could face significant financial penalties. The liquidated damages clause is designed to compensate Gold Star for the anticipated future royalty payments they would have received had the franchisee continued operating the business for the full term of the agreement. This is a common practice in franchising to protect the franchisor's investment in establishing and supporting the franchise network.
Furthermore, Gold Star retains the right to enter the premises of the franchised restaurant and exercise complete authority over its operation if the franchisee defaults on the agreement terms. This control can continue until Gold Star determines the default has been resolved and the franchisee is compliant. Gold Star can also petition a court to appoint a receiver for the franchisee's business or assets, and the franchisee agrees not to contest such a petition. These measures provide Gold Star with substantial control over a struggling or abandoned franchise, allowing them to protect their brand and potentially salvage the business.
Prospective franchisees should carefully consider these financial and operational implications before entering into a franchise agreement with Gold Star. Understanding the conditions under which these penalties and interventions can be triggered is crucial for managing the risks associated with the franchise.