Does Itan's reimbursement of audit costs preclude Itan from terminating the franchise agreement?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
Salon receives a "grade" or "score" based 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, the payment of noncompliance fees and default expense reimbursements does not prevent Itan from terminating the Franchise Agreement. Specifically, if a franchisee fails to address a breach within the given cure period, and Itan takes action to resolve the breach (such as securing necessary insurance or settling debts with system suppliers), the franchisee is obligated to reimburse Itan for all associated costs and expenses.
However, the FDD clearly states that Itan's collection of these noncompliance fees and reimbursements does not stop Itan from terminating the agreement if the default continues even after these payments are made. This means that even if a franchisee pays the fees or reimburses Itan for expenses incurred to correct a default, Itan retains the right to terminate the agreement if the underlying issue persists.
This clause protects Itan's interests by ensuring that franchisees cannot simply pay their way out of compliance issues. Itan maintains the ability to terminate the agreement if franchisees fail to adhere to the standards and operating procedures of the Itan system, regardless of whether noncompliance fees or default expense reimbursements have been collected. This provision underscores the importance of franchisees maintaining ongoing compliance with all standards and procedures outlined in the franchise agreement.