What are the Aplus developer's obligations upon termination or non-renewal of the Development Agreement?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
| Provision | Development | Summary | |
|---|---|---|---|
| Agreement | |||
| a. | Length of the Agreement term | Section 2.1 | The period beginning on the effective date and ending on the earlier of: (i) the date on which you have completed your development obligations, or (ii) 12:00 midnight CST on the last day specified in the development schedule. |
| b. | Renewal or extension of the term | No provision | Not applicable. |
| c. | Requirements for Developer to renew or extend | No provision | Not applicable |
| d. | Termination by Developer | No provision | Not applicable |
| e. | Termination by the franchisor without cause | No provision | Not applicable |
| f. | Termination by the franchisor with "cause" | Sections 9.1, 9.2., 9.3, 9.4, 9.5, and 9.6 | We can terminate if you materially default under your development agreement, an individual franchise agreement, or any other agreement between you or your affiliate and us. In the event of the death or permanent incapacity of an owner, we may terminate if you fail to adhere to the applicable transfer requirements. |
| g. | "Cause" defined - curable defaults | Sections 9.3, 9.4, 9.5, and 9.6 | You have 10 days to cure a failure to pay fees and 30 days to cure any other default, and in the case of a breach or default in the performance of your obligations under any franchise agreement or other agreement between you and us. |
| h. | "Cause" defined – non curable defaults | Sections 9.1 and 9.2 | Non-curable defaults: unapproved transfers; failure to meet development obligation; any breach of confidentiality or unfair competition described in Section 10; cross defaults, bankruptcy, foreclosure, insolvency, conviction of a felony, misrepresentations in your application, and/or repeated defaults, even if cured. |
| i. | Developer's obligation on termination/non-renewal | Sections 2.2 and 10.2 | You will have no further right to develop or operate additional APLUS Stores which are not, at the time of termination, the subject of a then existing franchise agreement between you and us. You may continue to own and operate all APLUS Stores under then existing Franchise Agreements. |
| j. | Assignment of contract by franchisor | Section 8.1 | No restrictions on our right to assign. |
| k. | "Transfer" by Developer – defined | Section 8.2 | Includes transfer of the agreement, changes in ownership of the entity which is a party to the agreement and transfers of assets. |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 53–64)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, upon termination or non-renewal of the Development Agreement, the developer's obligations are limited. Specifically, the developer will no longer have the right to develop or operate additional Aplus stores that are not already subject to an existing franchise agreement with Aplus. This means the developer cannot expand their Aplus business beyond what has already been agreed upon and franchised. However, the developer retains the right to continue owning and operating any Aplus stores that are already under existing franchise agreements.
This provision protects Aplus by preventing a terminated developer from further expanding the brand without authorization. It also allows the developer to continue benefiting from their existing investments in already-franchised locations. This ensures a smooth transition and prevents disruption to ongoing Aplus operations.
Furthermore, if the Development Agreement is prematurely terminated due to the developer's default, a non-compete clause may be enforced. The developer and any owner may be prohibited from owning an interest in, investing in, managing, operating, or performing services for any competitive business within the development area or within 25 miles of any existing or under-development Aplus store. This restriction lasts for two years after the termination of the Development Agreement. However, any competitive business owned by the developer or an affiliate at the time of the early termination due to default is excepted from this restriction.
This non-compete clause is designed to protect Aplus's market share and prevent a former developer from using their knowledge and resources to directly compete with the brand. The exception for businesses already owned at the time of termination provides some flexibility for the developer, but the restriction could still significantly impact their future business opportunities. A prospective franchisee should carefully consider these limitations and seek legal counsel to fully understand the implications of these clauses.