After the termination or expiration of the Development Agreement, under what circumstances is a Carls developer permitted to operate a restaurant franchised by CJR or its affiliates?
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.
H. Developer shall not, except with respect to a restaurant franchised by CJR or its affiliates which is then open and operating pursuant to an effective franchise agreement or a restaurant under construction that is franchised by CJR or its affiliates for which there is an effective franchise agreement: (1) operate or do business under any name or in any manner that might tend to give the public the impression that Developer is connected in any way with CJR or its affiliates or has any right to use the Carl's Jr. System or any of the Proprietary Marks; (2) make, use or avail itself of any of the materials or information furnished or disclosed by CJR or its affiliates under this Agreement or disclose or reveal any such materials or information or any portion thereof to anyone else; or (3) assist anyone not licensed by CJR or its affiliates to construct or equip a foodservice outlet substantially similar to a Carl's Jr. Restaurant.
Source: Item 23 — RECEIPTS (FDD pages 80–480)
What This Means (2024 FDD)
According to the 2024 Carls FDD, a developer's right to operate a Carls restaurant after the termination or expiration of the Development Agreement is contingent upon specific conditions. The developer can complete and open a franchised restaurant if a Franchise Agreement has been fully executed prior to the termination or expiration. Furthermore, the developer retains the right to continue operating franchised restaurants that were already open and operating as of the termination or expiration date, provided they are operating under an effective Franchise Agreement.
However, the limited exclusive rights granted to the developer within the Development Territory cease upon termination or expiration. This means Carls has the right to operate or license others to operate Carls restaurants anywhere within the former Development Territory. The developer must also return all materials and information provided by Carls, except those related to restaurants under development with an effective Franchise Agreement or those already open and operating under such an agreement.
Moreover, the developer is restricted from actions that might imply a connection with Carls after termination, unless it pertains to a restaurant franchised by Carls that is open and operating under an effective franchise agreement, or a restaurant under construction franchised by Carls with an effective franchise agreement. This includes refraining from using the Carls system or proprietary marks, and from assisting others in constructing similar foodservice outlets. These stipulations ensure that Carls maintains control over its brand and system, even after a development agreement concludes.