Under what circumstances might Carls consider reducing the royalty fee for a franchisee?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
On occasion, we may consider reducing the royalty fee to fit a particular concern, taking into account a variety of factors, including, but not limited to, where a franchisee agrees to develop a significant number of Franchised Restaurants, a franchisee agrees to significantly accelerate his historical development patterns, a franchisee agrees to develop Franchised Restaurants in a new territory, or a franchisee proposes to develop unique sites. If we agree to a reduction in the royalty fee, the reduction likely would be between 1% and 4% of the Gross Sales of the Franchised Restaurant for up to the first 3 years of operation of the Franchised Restaurant.
Under the CJR 2024 Development Incentive Program Addendum described in Item 1, with respect to Gross Sales accruing during the applicable Franchised Restaurant's first year of operation under the Franchise Agreement, for Franchised Restaurants that open on or ahead of schedule pursuant to an executed Franchise Agreement, we will reduce each of the royalty fee and APO by (i) 3% of Gross Sales accruing during the Restaurant's first year of operation; (ii) 2% of Gross Sales accruing during the Restaurant's second year of operation; and (iii) 1% of Gross Sales accruing during the Restaurant's third year of operation. After the third year of operation, the royalty fee reverts back to 4% of Gross Sales and the APO fee reverts back to 6.0% of Gross Sales. If you or any of your affiliates receives, during the first two years of operation of the Franchised Restaurant under the Franchise Agreement, a written notice of default under any agreement between you or any of your affiliates and CJR or any affiliate of CJR and fails to cure the default within the applicable cure period, the Addendum will be terminated and the royalty fee and APO for the Franchised Restaurant will immediately revert to the applicable amounts set forth in the Franchise Agreement.
Source: Item 6 — Other Fees (FDD pages 26–31)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, Carls may, on occasion, consider reducing the royalty fee for a franchisee based on specific factors. These factors include situations where a franchisee commits to developing a significant number of franchised restaurants, agrees to accelerate their historical development patterns, plans to develop restaurants in a new territory, or proposes to develop unique sites.
In the event that Carls agrees to a reduction in the royalty fee, the reduction would likely be between 1% and 4% of the Gross Sales of the franchised restaurant. This reduced rate would apply for up to the first 3 years of the restaurant's operation.
Additionally, under the CJR 2024 Development Incentive Program Addendum, Carls will reduce the royalty fee and APO (Advertising Pool Obligation) for franchised restaurants that open on or ahead of schedule. This reduction is 3% of Gross Sales during the first year, 2% during the second year, and 1% during the third year of operation. After the third year, the royalty fee reverts back to 4% of Gross Sales and the APO fee reverts back to 6.0% of Gross Sales. However, if the franchisee receives a written notice of default during the first two years and fails to cure it, the Addendum will be terminated, and the royalty fee and APO will revert to the standard amounts.