Under what conditions can Itan terminate the franchise agreement with cause?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
| THE FRANCHISE RELATIONSHIP | ||
|---|---|---|
| PROVISION S | ||
| a. Length of | FA: 1 (definition of Term) | Term is equal to 10 years. |
| franchise term | & 4.1 | |
| ADA: 1 (definition of | Term expires on the opening date listed in the development schedule for | |
| Term) | the last Salon you are required to develop. | |
| b. Renewal or extension of the term | FA: 4.1 & 4.2 | If you meet our conditions for renewal, you can enter into 2 consecutive successor franchise agreements. Each renewal term will be 5 years. The parties may mutually agree to further renewals but neither party is obligated to do so (subject to state law). |
| ADA: Not Applicable | No renewal rights. Parties must enter into a new area development agreement in order to grant you additional development rights. | |
| c. Requirements for you to renew or extend | FA: 4.1 & 4.2 | You must: not be in default; give us timely notice; sign then-current form of franchise agreement; sign general release (subject to state law); pay renewal fee; remodel Salon and upgrade furniture, fixtures and equipment to current standards; and extend lease term. If you renew, you may be required to sign a contract with materially different terms and conditions than the original contract. |
| ADA: Not Applicable | No renewal rights. Parties must enter into a new area development agreement in order to grant you additional development rights. | |
| d. Termination by | FA: 20.1 | You can terminate if we default and fail to timely cure. |
| you | ||
| ADA: Not Applicable | You can terminate under any grounds permitted by law. | |
| e. Termination by | FA: 20.3 | We can terminate without cause if you and we mutually agree to |
| us without cause | terminate. | |
| ADA: Not Applicable | Not applicable | |
| THE FRANCHISE RELATIONSHIP | ||
| Provision | SECTIONS IN AGREEMENT | SUMMARY |
| f. Termination by | FA: 20.2 | W |
| us with cause | ADA: 9.1 | We can terminate if you default. |
| g. "Cause" defined - curable defaults | FA: 20.2 | You have the following cure periods: (a) 10 days for financial defaults; and (b) 30 days for any other default (other than a default described below under "non-curable defaults"). |
| - curable defaults | ADA: 9.1 | You have 30 days to cure any default, other than defaults described below under "non-curable defaults". |
| h. "Cause" defined - non-curable defaults | FA: 20.2 | The following defaults cannot be cured: insolvency, bankruptcy or seizure of assets; failure to successfully complete training; failure to find approved site, secure lease or open in timely manner; abandonment; failure to maintain required license or permit; conviction of certain crimes or subject of certain administrative actions; violation of material law; commission of act that may adversely affect reputation of System or Marks; health or safety hazards; material misrepresentations; 2 nd underreporting of amounts due by at least 3%; unauthorized Transfers; unauthorized use of our intellectual property; violation of brand protection covenant; breach of Franchise Owner Agreement; breach of legal compliance representations; failure to notify us of a matter described in §15.6; termination of lease due to your default; 3 or more default notices in a 12-month period; or termination of any other agreement between you (or your affiliate) and us (or our affiliate) due to your default. However, termination of an ADA due to breach of the development schedule is not grounds for termination of any Franchise Agreement that is otherwise in good standing. |
| ADA: 9.1 | If we terminate a franchise agreement due to your default, we may terminate the ADA without opportunity to cure. | |
| i. |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION (FDD pages 36–39)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, Itan can terminate the franchise agreement with cause if the franchisee defaults. The FDD outlines both curable and non-curable defaults. For curable defaults, the franchisee has an opportunity to correct the issue within a specified time frame. Specifically, the franchisee has 10 days to cure financial defaults and 30 days to cure any other default, except for those categorized as non-curable.
Non-curable defaults, on the other hand, are more severe and do not offer an opportunity for the franchisee to rectify the situation. These include events such as insolvency, bankruptcy, seizure of assets, failure to complete training, failure to secure an approved site or lease, abandonment of the business, failure to maintain required licenses or permits, conviction of certain crimes, violation of material law, actions that adversely affect the reputation of the Itan system, health or safety hazards, material misrepresentations, a second instance of underreporting amounts due by at least 3%, unauthorized transfers, unauthorized use of Itan's intellectual property, violation of brand protection covenants, breach of the Franchise Owner Agreement, breach of legal compliance representations, failure to notify Itan of certain critical matters, termination of the lease due to the franchisee's default, receiving three or more default notices within a 12-month period, or termination of any other agreement between the franchisee (or their affiliate) and Itan (or its affiliate) due to the franchisee's default. However, the termination of an Area Development Agreement (ADA) due to a breach of the development schedule does not constitute grounds for terminating a Franchise Agreement that is otherwise in good standing.
For prospective Itan franchisees, it's crucial to understand these conditions for termination. The distinction between curable and non-curable defaults is significant, as non-curable defaults can lead to immediate termination without an opportunity to correct the issue. Franchisees should pay close attention to the list of non-curable defaults and ensure they maintain strict compliance with all aspects of the franchise agreement to avoid potential termination. Furthermore, franchisees should be aware of the cure periods for different types of defaults and take prompt action to address any issues that may arise.
It is also important to note that if Itan terminates a franchise agreement due to the franchisee's default, Itan may also terminate the Area Development Agreement without providing an opportunity to cure the default. This highlights the interconnectedness of the agreements and the potential consequences of non-compliance.