What happens if the Bonchon franchisee does not meet the conditions outlined in Section 4 of the rider?
Bonchon Franchise · 2025 FDDAnswer from 2025 FDD Document
- Continuing Royalty. The first paragraph of Section 5.02 of each franchise agreement signed pursuant to the Area Development Agreement and where the subject Restaurant opens and commences operations in accordance with the conditions set forth herein below will be amended to read as follows:
From the opening date of your Bonchon Restaurant and continuing through the end of your Bonchon Restaurant's first full twelve months of operations, you agree (subject to the terms and conditions of the Area Development Agreement Rider – 2025 Development Incentive Program which you have executed in connection with this Agreement) to pay us a weekly Continuing Royalty equal to 2.5% of your previous week's Gross Revenues, as defined in Section 5.05 ("Definition of Gross Revenue"). After your Restaurant's first full twelve months of operations and continuing through the remainder of the Initial Term of the Franchise Agreement, you agree to pay us a weekly Continuing Royalty equal to 5.0% of your previous week's Gross Revenues. The Continuing Royalty is solely in consideration of our granting you the franchise conferred by this Agreement and is not in exchange for any particular goods, services or assistance we may furnish you.
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- Conditions. Area Developer acknowledges, understands and expressly agrees that for Area Developer (or its approved franchisee affiliate, as applicable) to receive the incentives described in Section 2 and 3 of this Rider for a Restaurant development under the Area Development Agreement, each of the following conditions must be satisfied:
- a. The subject Restaurant opens to the general public and commences regular operations no later than its Scheduled Opening Date as reflected in Section 6.01 of the Area Development Agreement;
- b. Area Developer is in full compliance with the Area Development Agreement and all other agreements with Franchisor and its affiliates: and
c. Area Developer (and each of its approved franchisee affiliates) operating franchised Businesses pursuant to the Area Development Agreement or otherwise (each, an "Affiliate Franchisee") is in full compliance with its respective franchise agreements and all other agreements with Franchisor or its affiliates.
Source: Item 23 — RECEIPTS (FDD pages 92–536)
What This Means (2025 FDD)
The 2025 Bonchon Franchise Disclosure Document outlines specific conditions that an Area Developer must meet to receive incentives under the Development Incentive Program. According to Section 4 of the Franchise Agreement Rider, these conditions include opening the restaurant to the public by the scheduled opening date, compliance with the Area Development Agreement, and compliance of the Area Developer and their franchisees with their respective franchise agreements and other agreements with Bonchon.
If these conditions are not met, the Area Developer (or their approved franchisee affiliate) will not receive the incentives described in Sections 2 and 3 of the Rider for restaurant development under the Area Development Agreement. These incentives relate to a reduced royalty fee during the first year of operation.
Specifically, the standard continuing royalty fee is 5.0% of gross revenues. However, Bonchon offers an incentive program where franchisees pay a reduced royalty of 2.5% of gross revenues for the first twelve months of operation. If the franchisee fails to meet the conditions outlined in Section 4 of the rider, they will not be eligible for this reduced royalty fee and will instead be required to pay the standard 5.0% royalty fee from the restaurant's opening date.
This has significant financial implications for prospective franchisees. Failing to meet the conditions outlined in Section 4 means losing out on the reduced royalty incentive, which could impact profitability during the critical first year of operation. Franchisees should carefully review these conditions and ensure they can comply to take full advantage of the incentive program.