What payments are immediately due to CJR and its affiliates upon termination or expiration of a Carls franchise agreement?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
Upon termination or expiration of this Agreement:
A. Franchisee immediately shall cease operating the Franchised Restaurant.
B. Franchisee immediately shall pay CJR and its affiliates all sums due and owing CJR or its affiliates related to the Franchised Restaurant.
In addition, if this Agreement is terminated following Franchisee's default, since it would be difficult, if not impossible, to determine the amount of damages that CJR will suffer as a result of Franchisee's breach, unless waived by CJR in its sole discretion, Franchisee immediately shall pay CJR, as damages and not as a penalty, the royalty fee that Franchisee would have paid during the period ("Damages Period") from the effective date of termination to the earlier of: (1) the 3-year anniversary of the effective date of termination; or (2) the date on which the Initial Term was scheduled to expire.
The amount of such royalty fee during the Damages Period will be calculated by multiplying the average weekly royalty fee owed by Franchisee for the 52-week period prior to the effective date of termination by the number of weeks in the Damages Period.
The obligation to pay this royalty fee survives termination of this Agreement and is in addition to, and not in lieu of, Franchisee's obligation to fully comply with its obligations under Section 20.C. following termination of this Agreement.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to the 2024 FDD, upon termination or expiration of the franchise agreement, a Carls franchisee must immediately pay all outstanding sums due to CJR (Carls Jr. Restaurants) and its affiliates related to the franchised restaurant.
Furthermore, if the agreement is terminated due to the franchisee's default, the franchisee must immediately pay Carls a royalty fee as damages. This fee covers the period from the termination date to either the 3-year anniversary of the termination or the original expiration date of the initial term, whichever comes first. The royalty fee is calculated by multiplying the average weekly royalty fee from the 52 weeks before termination by the number of weeks in this damage period.
It is important to note that the obligation to pay this royalty fee survives the termination of the agreement and is in addition to the franchisee's obligations under Section 20.C, which likely covers post-termination responsibilities. This could represent a significant financial burden for a franchisee who has defaulted, as they would not only lose the franchise but also be required to continue paying royalties for a certain period.