Does paying noncompliance fees or reimbursing default expenses prevent Itan from terminating the Franchise Agreement?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
on the inspection results. Failure to achieve a passing grade or score constitutes a default under this Agreement. You must implement all corrective measures we require within the time period we specify to rectify any noncompliance issues revealed by an inspection.
- 11.16.Failure to Comply with Standards. You acknowledge the importance of every one of our standards and operating procedures to the reputation and integrity of the System and goodwill associated with the Marks. If we notify you of a breach of our standards or operating procedures (including failure to submit required reports in a timely manner) and you fail to cure within the time period we prescribe, we may (in addition to our other remedies under this Agreement) impose a noncompliance fee of $500 per occurrence. We may impose a separate $500 fee every 48 hours the same noncompliance issue remains uncured after we impose the initial fee. Any noncompliance fees we collect are paid in consideration of us refraining from exercising our contractual right to terminate this Agreement. If you fail to cure a breach before the expiration of the cure period (if any) and we take steps to cure the breach (for example, obtaining required insurance coverage on your behalf or paying amounts you owe to system suppliers), then you must reimburse
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, paying noncompliance fees or reimbursing default expenses does not necessarily prevent Itan from terminating the Franchise Agreement. Itan imposes a noncompliance fee of $500 per occurrence if a franchisee breaches standards or operating procedures and fails to cure the breach within the prescribed time. An additional $500 fee may be imposed every 48 hours if the issue remains uncured. Franchisees must also reimburse Itan for all costs and expenses incurred if Itan takes steps to cure a breach on the franchisee's behalf.
However, the FDD states that the payment of these fees and reimbursements does not preclude Itan from terminating the agreement if the default continues after the fees are collected. This means that while Itan may initially refrain from terminating the agreement in consideration of these payments, they retain the right to terminate if the franchisee does not ultimately correct the underlying issue that led to the fees and expenses.
This clause is significant for prospective Itan franchisees as it clarifies that simply paying noncompliance fees or reimbursing expenses does not guarantee the continuation of the franchise agreement. Franchisees must ensure they fully address and cure any breaches to avoid potential termination, even after making these payments. This provision is not uncommon in franchising, as franchisors often want to maintain the right to terminate agreements with franchisees who repeatedly violate standards, regardless of whether fees have been paid.