What are the potential consequences for a Bonchon franchisee if they fail to meet the development schedule outlined in the Area Development Agreement (Item 9), considering the franchisor's territory designation rights (Item 11)?
Bonchon Franchise · 2025 FDDAnswer from 2025 FDD Document
Except for causes beyond your control as described in Section 17.01 of the Area Development Agreement, if you fail to adhere to the Development Schedule in your Area Development Agreement by either: failing to execute the Franchise Agreement for each franchised Business on or before the date of execution specified on the Development Schedule, or failing to commence operations of each franchised Business on or before the applicable commencement of operations date specified on the Development Schedule, then we can terminate the Area Development Agreement. If we terminate the Area Development Agreement for this reason, this will not be a termination of any Franchise Agreements you and we signed under which you have already begun operating the franchised Bonchon Businesses covered by the Franchise Agreements if you have fully performed and been in compliance with all of your obligations under those Franchise Agreements but you will not be entitled to open any further Bonchon Businesses in the Development Territory and you will not be entitled to the return of the Area Development Fees you paid for the undeveloped Bonchon Businesses.
What This Means (2025 FDD)
According to Bonchon's 2025 Franchise Disclosure Document, a franchisee's failure to adhere to the development schedule outlined in the Area Development Agreement can lead to significant repercussions. The development schedule specifies the timetable for opening Bonchon Businesses within the designated Development Territory. This schedule is mutually agreed upon, considering factors like location, market conditions, and the franchisee's experience and capital commitment.
If a Bonchon franchisee fails to meet the deadlines for executing Franchise Agreements or commencing operations as specified in the development schedule, Bonchon has the right to terminate the Area Development Agreement. This termination does not affect any existing Franchise Agreements under which the franchisee has already begun operating Bonchon Businesses, provided they are in full compliance with those agreements. However, the franchisee loses the right to develop any remaining Bonchon Businesses within the Development Territory and forfeits the Area Development Fees paid for those undeveloped locations.
Furthermore, Bonchon retains the right to operate or franchise Bonchon Businesses within the Development Territory without violating the agreement. This means that Bonchon can grant new franchises in the area that was originally designated for the franchisee who failed to meet the development schedule. The FDD emphasizes that timely performance of development obligations is of material importance to the Area Development Agreement, underscoring the seriousness of adhering to the agreed-upon schedule. There is an exception for unavoidable delays or failures to perform due to force majeure events, as described in Section 17.01 of the Area Development Agreement.