Considering the Hardees litigation (Item 3), what due diligence should a prospective franchisee perform before signing the franchise agreement and paying the initial fees (Item 5)?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
ADDENDUM TO THE HARDEE'S RESTAURANT FRANCHISE DISCLOSURE DOCUMENT REQUIRED FOR NORTH DAKOTA FRANCHISEES
Items 5 and 7, Additional Disclosures. The following statement is added to Items 5 and 7:
Franchisor will defer collection of the Initial Franchise Fees until all initial obligations owed to franchisee under the franchise agreement or other documents have been fulfilled by the franchisor and the franchisee has commenced doing business pursuant to the franchise agreement.
Item 17, Additional Disclosures. The following statements are added to Item 17:
What This Means (2025 FDD)
Based on the 2025 Hardees Franchise Disclosure Document, several addenda address franchisee rights and fee deferrals based on specific state laws and the franchisor's financial condition. These addenda highlight areas where a prospective franchisee should conduct thorough due diligence, especially concerning litigation, financial obligations, and legal rights.
For instance, addenda for Maryland, Minnesota, and North Dakota franchisees state that initial fees and payments may be deferred until Hardees completes its pre-opening obligations. This is due to the franchisor's financial condition and requirements by state regulators. A prospective franchisee should verify Hardees' current financial condition and ensure that such deferral terms are explicitly included in their franchise agreement. They should also confirm what constitutes fulfillment of pre-opening obligations to avoid disputes later.
Additionally, the FDD includes addenda that address legal rights and limitations. For example, the North Dakota addendum modifies the standard franchise agreement to remove the requirement for franchisees to consent to Tennessee court jurisdiction and a one-year limitation on claims. It also stipulates that the prevailing party in a dispute is entitled to recover costs and expenses, including attorney's fees. Similarly, addenda for Maryland and Minnesota franchisees prevent waivers of claims of fraud in the inducement. A prospective franchisee should consult with a franchise attorney to understand how these state-specific provisions affect their rights and obligations, and to ensure that the franchise agreement complies with local laws. They should also investigate any past litigation involving Hardees, particularly cases related to franchisee disputes, to assess potential risks and liabilities.
Finally, prospective Hardees franchisees should pay close attention to termination conditions and incentives. An addendum discusses the termination of program incentives if a franchisee fails to open the restaurant by a specified date or receives a notice of default that is not cured. It also mentions a potential waiver of $15,000 of the initial franchise fee if the restaurant opens six months early. Understanding these conditions and incentives is crucial for financial planning and operational success. Franchisees should clarify all terms and conditions in writing and seek legal advice to fully understand their implications.