Under what conditions can a Management Recruiters franchisee terminate the franchise agreement, and what is the buyout requirement?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
erations to our then current standards and methods. | | Termination by you | Section 20.4, 20.5 | Only during last year of initial term subject to buy out requirement of 15% of Gross Billings during immediate trailing twelve months with six months' written notice. | | Termination by us without cause | None | N/A | | Termination by us with cause | Section 20.1, 20.2, 20.3 | | | "Cause" defined – defaults | Section 20.1 | Default of obligations under the franchise agreement which include failure to pay any amounts when due and failure to comply with operational obligations set forth in the franchise agreement or operations manual. | | which can be cured | | |
| "Cause" defined – non- curable | Section 20.2 | Defaults of obligations under the franchise agreement as defined in Sections 20.2 including Franchisee has not generated sufficient Gross Funds to pay a Gross Continuing Fee of at least three thousand dollars ($3,000.00) within six (6) months following the Effective Date; Franchisee is declared bankrupt or judicially determined to be insolvent, or all or a substantial part of the assets of Franchisee or the Franchise Business are assigned to or for the benefit of any creditor, or Franchisee admits his inability to pay Franchisee's debts as they come due; Franchisee abandons the Franchise Business by failing to operate for five (5) consecutive days during which Franchisee is required to operate the Franchise Business under this Agreement's terms, or any shorter period after which it is not unreasonable under the facts and circumstances for Franchisor to conclude that Franchisee does not intend to continue to operate the Franchise Business; Franchisee has made any material misrepresentation relating to acquisition of the Franchise Business or to induce Franchisor to enter into this Agreement; Franchisee engages in conduct that, in Franchisor's sole determination, materially and unfavorably reflects upon the operation and reputation of the Franchise Business or the System; |
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| determination, materially and unfavorably reflects upon the operation and reputation of the Franchise | ||
| federal, state, or local Law or regulation applicable to operation of the Franchise Business; after curing any failure described in Section 20.1 Franchisee engages in the same noncompliance, regardless of whether such noncompliance is corrected | ||
| after notice; Franchisee repeatedly fails to comply with one or more requirements of this Agreement regardless of whether corrected after notice; | ||
| the Franchise Business is seized, taken over or foreclosed by a Governmental Authority in the exercise of such official's duties, or seized, taken over, or foreclosed by a creditor, lien holder or lessor, provided that a final judgment against Franchisee remains unsatisfied for thirty (30) days, unless a supersedes or other appeal bond has been filed; | ||
| a levy of execution is made upon the Franchise Business or upon any property used in the Franchise Business and is not discharged within five (5) days after such levy; | ||
| Franchisee, or any of its Principals, shareholders, members, officers, directors, or partners is convicted of, or pleads guilty or no contest to, any crime punishable as a felony or involving moral turpitude or immoral conduct; |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION (FDD pages 49–54)
What This Means (2024 FDD)
According to Management Recruiters's 2024 Franchise Disclosure Document, a franchisee can only terminate the franchise agreement during the last year of the initial term. To do so, the franchisee must provide six months' written notice and meet a buyout requirement. The buyout requirement is 15% of Gross Billings during the immediate trailing twelve months.
Management Recruiters can terminate the franchise agreement with cause, stemming from the franchisee's failure to meet obligations. These obligations include failure to pay amounts when due and failure to comply with operational obligations detailed in the franchise agreement or operations manual.
'Cause' is specifically defined as defaults of obligations under the franchise agreement. Examples include not generating sufficient Gross Funds to pay a Gross Continuing Fee of at least $3,000 within six months of the Effective Date, being declared bankrupt or insolvent, abandoning the business for five consecutive days, making material misrepresentations, or engaging in conduct that unfavorably reflects on the Franchise Business or System. Other causes include violations of laws or regulations, repeated non-compliance with the agreement, seizure of the business by a governmental authority or creditor, an unsatisfied levy of execution, or conviction of a felony or crime involving moral turpitude.
These termination conditions and buyout requirements are important for prospective franchisees to consider. The limited ability to terminate and the associated costs could pose a risk if the franchisee's circumstances change or the business underperforms. It is essential to fully understand these terms before entering into a franchise agreement with Management Recruiters.