After the termination or expiration of the Development Agreement, does the Developer retain the right to continue operating Carls restaurants that were open and operating as of the termination or expiration date?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
Upon termination or expiration of this Agreement:
- A. Developer shall have no further right to develop or open Franchised Restaurants in the Development Territory, except that Developer shall be entitled to complete and open a Franchised Restaurant for which a Franchise Agreement has been fully executed. Termination or expiration of this Agreement shall not affect Developer's right to continue to operate Franchised Restaurants that were open and operating as of the date this Agreement terminated or expired.
- B. The limited exclusive rights granted Developer in the Development Territory shall terminate and CJR shall have the right to operate or license others to operate Carl's Jr. Restaurants anywhere in the Development Territory.
- C. Developer promptly shall return to CJR all materials and information furnished by CJR or its affiliates, except materials and information furnished with respect to a Franchised Restaurant under development for which there is an effective Franchise Agreement or a Franchised Restaurant which is open and operating pursuant to an effective Franchise Agreement.
- D. Developer and all persons and entities subject to the covenants contained in Section 12 shall continue to abide by those covenants and shall not, directly or indirectly, take any action that violates those covenants.
Source: Item 23 — RECEIPTS (FDD pages 80–480)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the termination or expiration of the Development Agreement does not affect the Developer's right to continue operating franchised restaurants that were open and operating as of the date the agreement terminated or expired. However, the Developer has no further right to develop or open additional Carls restaurants in the Development Territory, unless a Franchise Agreement has already been fully executed for a restaurant.
Upon termination or expiration, the limited exclusive rights granted to the Developer in the Development Territory also terminate. This means Carls has the right to operate or license others to operate Carl's Jr. Restaurants anywhere in the Development Territory after the agreement ends. The Developer must also promptly return all materials and information furnished by Carls, except those related to restaurants under development with an effective Franchise Agreement or restaurants that are open and operating under an effective Franchise Agreement.
The Developer and related parties must continue to abide by the covenants outlined in Section 12 of the agreement, which typically include non-compete and confidentiality obligations. They cannot take any action that violates these covenants, ensuring continued protection of Carls's interests even after the Development Agreement concludes. This ensures a smooth transition and protects Carls's brand and operational methods within the territory.