Can CJR modify the Carls System and Development Guide, and if so, under what conditions?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
| Provision | Section In Development Agreement | Summary | |
|---|---|---|---|
| q. | Non-competition covenants during the term of the franchise | Section 12.C. | Except with our consent - no diversion of any business or customer to any competitor; no interest in any restaurant business: (i) whose sales of Designated Entrée Items during any daypart are reasonably likely to account collectively for 20% or more of the restaurant's sales of all entrée items during that daypart, (ii) that features or promotes any Designated Entrée Item in its advertising, or (iii) that operates in a quick-service format (with or without table service). "Designated Entrée Items" means any hamburger sandwich, chicken sandwich, breakfast sandwich and any other entrée item of a type designated by us as part of the Carl's Jr. System at any time during the term of the Development Agreement. |
| r. | Non-competition covenants after the franchise is terminated or expires | Section 12.C. | No activity as described in paragraph q. above for 2 years within your Development Territory, within 2 miles of its border and within a 2- mile radius of any then-existing Carl's Jr. Restaurant. |
| s. | Modification of the agreement | Section 20 | No modification generally without signed agreement, but CJR may modify the Carl's Jr. System and the Development Guide. |
| t. | Integration/merger clause | Section 20 | Only the terms of the Development Agreement, the Development Guide, the documents referred to in and the attachments to the Development Agreement are binding. Any other oral or written promises related to the subject matter of the Development Agreement may not be enforceable. This is not intended to disclaim any representation made in this disclosure document. |
| u. | Dispute resolution by arbitration or mediation | Not Applicable | |
| v. | Choice of forum | Section 22.B. | Subject to applicable state law, you can only file suit where our principal offices are located. |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION (FDD pages 61–66)
What This Means (2024 FDD)
According to the 2024 FDD, CJR has the right to modify the Carl's Jr. System and the Development Guide. Specifically, Section 20 of the Development Agreement states that while modifications to the agreement generally require a signed agreement, CJR retains the authority to unilaterally change the Carl's Jr. System and the Development Guide. Similarly, Section 29 of the Franchise Agreement indicates that CJR can modify the System and the OPM (presumably the Operations Procedures Manual).
For a prospective Carls franchisee, this means that the operational standards, procedures, and guidelines outlined in the Development Guide and the System are subject to change at the discretion of CJR. These modifications could impact various aspects of the business, including menu items, marketing strategies, restaurant design, and technology.
While the franchise agreement itself generally requires a signed agreement for modifications, this clause carves out an exception, granting CJR the flexibility to adapt the Carls system to changing market conditions or evolving consumer preferences. Franchisees should be aware that they will be obligated to implement these changes, which may involve additional costs or operational adjustments. It is important for potential franchisees to understand the scope and potential impact of these modifications on their business.
It is also important to note the integration/merger clause in both the Development Agreement and the Franchise Agreement. This clause states that only the terms of the respective agreements, the Development Guide/OPM, and referenced documents are binding. Any other oral or written promises may not be enforceable, but this does not disclaim any representation made in the disclosure document. This reinforces the importance of carefully reviewing all official documents and seeking clarification on any points of concern before entering into a franchise agreement with Carls.