Considering the restrictions on suppliers in Item 8, what recourse does an Itan franchisee have if a supplier fails to meet quality standards, impacting their obligations in Item 9?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
Source-Restricted Purchases and Leases - Generally
You must purchase or lease certain source-restricted goods and services for the development and operation of your Salon. "Source-restricted" means the good or service must meet our specifications or must be purchased from an approved or designated supplier (in some cases, an exclusive designated supplier, which may be us or
an affiliate). The Manual includes our specifications and supplier list. We notify you of changes to our specifications and suppliers by email, updates to the Manual or other means of communication.
Supplier Criteria
Our criteria for evaluating suppliers include standards for: (a) quality, performance, design, appearance and price of the product or service; and (b) dependability, production capabilities, reputation and financial strength of the supplier. Upon request, we will provide you with any objective specifications pertaining to our evaluation of a supplier or product, although certain important subjective criteria (e.g., product appearance, design, functionality, etc.) are important to our evaluation but cannot be described in writing.
If you wish to purchase or lease a source-restricted item from a non-approved supplier, you must send us: (a) a written request for approval; (b) product samples for testing purposes; and (c) all additional information we request. The supplier must agree to comply with our minimum insurance, indemnification and confidentiality requirements for system suppliers and allow us to periodically inspect their facility. We may also require that the supplier sign a license agreement with us if the products will bear our Marks. We will notify you of our decision within 30 days after we receive all required information and product samples. We may periodically reinspect approved products and suppliers and revoke our approval if a product or supplier fails to meet our then-current criteria. You must reimburse all costs we incur to evaluate products and suppliers you propose.
Current Source-Restricted Purchases and Leases
We estimate nearly 95% of the total purchases and leases to establish your Salon and 85% of ongoing operating expenses will consist of source-restricted goods or services, as further described below.
Lease
We do not review the terms of your lease. However, if you lease the premises for your Salon, you must use best efforts to ensure your landlord signs the Lease Addendum attached to the Franchise Agreement as ATTACHMENT "C".
Design and Construction Services
You must hire an architect to prepare initial design plans and detailed construction plans for the construction of your Salon. We must approve all plans before constructions begins. Once approved, you must construct and equip your Salon according to the approved plans and the specifications in the Manual. Your architect and general contractor must be appropriately licensed and bonded to the extent required by applicable law. We may require that you utilize an architect that we designate or approve.
Fixtures, Furnishings and Décor
All fixtures, furnishings and décor must meet our standards and specifications and must be purchased from suppliers we designate or approve.
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, franchisees are obligated to purchase or lease certain goods and services from approved or designated suppliers, with an estimated 95% of initial purchases and leases and 85% of ongoing operating expenses being source-restricted. Itan evaluates suppliers based on quality, performance, design, appearance, price, dependability, production capabilities, reputation, and financial strength. If a franchisee wishes to use a non-approved supplier, they must seek approval from Itan, which includes providing product samples and supplier information, and covering the costs of evaluation.
If an Itan franchisee has a dispute with an approved supplier, they are still obligated to promptly pay all amounts owed, unless they have a bona-fide dispute. In the event of a dispute, the franchisee must notify the supplier and diligently pursue resolution or legal action. Failure to pay a system supplier in a timely manner may be considered a breach of the Franchise Agreement if the debt remains unpaid more than 30 days after its due date, unless alternative payment terms are agreed upon or legal action is initiated.
Itan disclaims liability for the acts, errors, or omissions of approved suppliers, provided that they designate or approve suppliers in good faith. This includes issues such as defective goods, delayed delivery, or inability to meet demand. If a franchisee has a claim related to the purchase of goods or services from a system supplier, their sole recourse is against the supplier, not Itan. This means that Itan franchisees bear the risk of supplier performance and must manage disputes directly with the suppliers, potentially impacting their ability to meet the standards and policies outlined in Item 9 of the FDD.