Can a Multi-Unit Developer withhold payment of Development Fees to Southern Steer based on alleged nonperformance by the Franchisor?
Southern_Steer Franchise · 2025 FDDAnswer from 2025 FDD Document
The Multi-Unit Developer will not, on grounds of the alleged nonperformance by the Franchisor of any of its obligations under this Agreement, any other contract between the Franchisor and the Multi-Unit Developer, or for any other reason, withhold payment of any Development Fees or other payments due the Franchisor pursuant to this Agreement, any Franchise Agreement or any other contract with the Franchisor. The Multi-Unit Developer will not have the right to "offset" or withhold any liquidated or unliquidated amounts, damages or other funds allegedly due to the Multi-Unit Developer by the Franchisor against any Development Fees or payments due to the Franchisor by the Multi-Unit Developer pursuant to this Agreement, any Franchise Agreement or any other contract with the Franchisor. The Franchisor will have the right to deduct from amounts payable to the Multi-Unit Developer by the Franchisor or an Affiliate any fees or other payments owed by Multi-Unit Developer to the Franchisor, an Affiliate or a third party. The Franchisor will also have the right to apply the Fees and other payments made to the Franchisor by the Multi-Unit Developer in such order as the Franchisor may designate from time to time.
Source: Item 5 — and 7 of the FDD, Section 3.1 of the Franchise Agreement and Section 4.1 of the Multi-Unit Development Agreement are hereby amended to state that payment of the initial franchise fee and development fee will be deferred until We have satisfied Our pre-opening obligations, and You have commenced business operations. (FDD pages 168–290)
What This Means (2025 FDD)
According to Southern Steer's 2025 Franchise Disclosure Document, a Multi-Unit Developer cannot withhold payment of any Development Fees or other payments due to Southern Steer based on alleged nonperformance by Southern Steer of its obligations under the Multi-Unit Development Agreement, any Franchise Agreement, or any other contract with Southern Steer. The Multi-Unit Developer also does not have the right to "offset" or withhold any liquidated or unliquidated amounts, damages, or other funds allegedly due to the Multi-Unit Developer by Southern Steer against any Development Fees or payments due to Southern Steer.
Southern Steer, however, has the right to deduct from amounts payable to the Multi-Unit Developer by Southern Steer or an Affiliate any fees or other payments owed by the Multi-Unit Developer to Southern Steer, an Affiliate, or a third party. Southern Steer also has the right to apply the Fees and other payments made to Southern Steer by the Multi-Unit Developer in such order as Southern Steer may designate from time to time.
This clause is generally included in franchise agreements to ensure a steady revenue stream for the franchisor. It places the onus on the franchisee to resolve disputes through proper channels while still meeting their financial obligations. Prospective franchisees should be aware of this clause and factor it into their financial planning, ensuring they have sufficient capital to cover fees even if they have a dispute with Southern Steer.