What constitutes an acceptable reason for a Monicals Pizza franchisee to be unable to demonstrate that understatements of royalty fees resulted from inadvertent error?

According to the 2025 Monicals Pizza Franchise Disclosure Document, if a franchisee understates royalty fees or other fees owed to Monicals Pizza by more than 3% for any accounting period on two or more separate occasions, it constitutes a breach of the franchise agreement, potentially leading to termination. However, this is only the case if the franchisee cannot demonstrate that these understatements resulted from inadvertent error. The FDD does not define what would be considered an acceptable demonstration of inadvertent error.

Inadvertent errors typically involve unintentional mistakes, such as mathematical errors, data entry errors, or misapplication of accounting principles. To demonstrate that an understatement was the result of inadvertent error, a franchisee might provide documentation showing the mistake, such as corrected reports, explanations of the error, or evidence of a system malfunction. The key is to show that the error was unintentional and not a deliberate attempt to underreport sales to reduce royalty payments.

Since the FDD does not provide specific examples or guidelines for what Monicals Pizza would deem an acceptable demonstration of inadvertent error, prospective franchisees should seek clarification from the franchisor during their due diligence. Understanding the criteria Monicals Pizza uses to evaluate such explanations can help franchisees avoid potential disputes and ensure compliance with the franchise agreement. Franchisees should also maintain accurate records and implement internal controls to minimize the risk of errors in reporting sales and calculating royalty fees.