Under what circumstances can CJR terminate the Carls Development Agreement without providing an opportunity to cure?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
In addition to the grounds for termination that may be stated elsewhere in this Agreement, CJR may terminate this Agreement, and the rights granted by this Agreement, upon written notice to Developer without an opportunity to cure upon the occurrence of any of the following events:
(1) Developer fails to provide CJR with a fully-executed lease or sublease, or proof of purchase of the real property, for a proposed site by the applicable Property Control Date listed in Appendix B.
(2) Developer fails to open an authorized site by the Opening Date listed in Appendix B.
(3) At any time during the Development Term, Developer fails to have open and operating the minimum number of Franchised Restaurants required by the Development Schedule.
(4) Developer begins construction of a Franchised Restaurant at a site before Developer has received a fully-executed Franchise Agreement and paid CJR the Initial Franchise Fee.
(5) Developer is insolvent or is unable to pay its creditors (including CJR); files a petition in bankruptcy, an arrangement for the benefit of creditors or a petition for reorganization; there is filed against Developer a petition in bankruptcy, an arrangement for the benefit of creditors or petition for reorganization, which is not dismissed within 60 days of the filing; Developer makes an assignment for the benefit of creditors; or a receiver or trustee is appointed for Developer and not dismissed within 60 days of the appointment.
(6) Execution is levied against Developer's business or property; suit to foreclose any lien or mortgage against the premises or equipment of any Franchised Restaurant developed hereunder is instituted against Developer and is not dismissed within 60 days; or the real or personal property of any Franchised Restaurant developed hereunder shall be sold after levy thereupon by any sheriff, marshal or constable.
(7) There is a material breach by Developer of any obligation under Section 12.
If Developer has received 2 or more notices of default pursuant to this Section 13.A.(13) within the previous 12 months, CJR shall be entitled to send Developer a notice of termination upon Developer's next default under this Section 13.A.(13) in that 12-month period without providing Developer an opportunity to remedy that default.
Source: Item 23 — RECEIPTS (FDD pages 80–480)
What This Means (2024 FDD)
According to the 2024 Carls Franchise Disclosure Document, CJR (Carls Jr. Restaurants LLC) can terminate the Development Agreement with a developer without providing an opportunity to cure under specific circumstances. These include failing to provide a fully-executed lease or proof of property purchase by the Property Control Date, failing to open an authorized site by the Opening Date, or not having the minimum required number of restaurants open and operating during the Development Term.
Additional reasons for immediate termination include beginning construction before receiving a fully-executed Franchise Agreement and paying the Initial Franchise Fee, becoming insolvent or filing for bankruptcy, or facing execution levied against the developer's business or property. A material breach of obligations under Section 12 of the agreement also allows for termination without opportunity to cure.
Furthermore, if a developer receives two or more default notices within a 12-month period and then commits another default under Section 13.A.(13) within that same period, Carls can issue a termination notice without allowing the developer to remedy the latest default. However, Minnesota law provides that with respect to franchises governed by Minnesota law, CJR will comply with Minnesota Statute § 80C.14, Subdivision 3, 4, and 5, which requires, except in certain cases, that a franchisee be given 90 days notice of termination (with 60 days to cure) and 180 days notice for non-renewal of the franchise agreements.
These stipulations highlight the importance of adhering to the Development Agreement's terms, particularly regarding financial stability, meeting development schedules, and complying with Carls's operational requirements. Prospective developers should carefully review these termination conditions to understand the potential risks and obligations associated with the agreement.