For a Carls Jr. franchise, what constitutes a material, non-curable breach of the Development Agreement that would allow CJR to terminate the agreement?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
(7) There is a material breach by Developer of any obligation under Section 12.
(8) Any Transfer that requires CJR's prior written consent occurs without Developer having obtained that prior written consent.
(9) CJR discovers that Developer made a material misrepresentation or omitted a material fact in the information that was furnished to CJR in connection with its decision to enter into this Agreement.
(10) Developer knowingly falsifies any report required to be furnished CJR or makes any material misrepresentation in its dealings with CJR or fails to disclose any material facts to CJR.
(11) Developer, the Development Principal, any stockholder, member, partner, director or officer of Developer, any member of the Continuity Group or any 10% Owner is convicted of, or pleads no contest to, a felony charge, a crime involving moral turpitude, or any other crime or offense that is reasonably likely, in the sole opinion of CJR, to adversely affect CJR, its affiliates, the Carl's Jr.
System.
(12) Developer, the Development Principal, any member of the Continuity Group, any 10% Owner or any Affiliated Entity remains in default beyond the applicable cure period: (a) under any other agreement with CJR or its affiliates; (b) under any real estate lease, equipment lease, or financing instrument relating to a Franchised Restaurant; or (c) with any vendor or supplier to a Franchised Restaurant; provided that if the default is not by Developer, Developer is given written notice of the default and 30 days to cure said default.
(13) Developer fails or refuses to comply with any other provision of this Agreement or any requirement of the Carl's Jr.
System and does not correct the failure or refusal within 30 days (10 days for monetary defaults) after receiving written notice of default.
Except for monetary defaults, if the default cannot be corrected within 30 days, Developer shall have such additional time to correct the default as reasonably required (not to exceed 90 days) provided that Developer begins taking the actions necessary
Source: Item 23 — RECEIPTS (FDD pages 76–364)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, there are several actions that constitute a material breach of the Development Agreement, allowing CJR to terminate the agreement. These include violating Section 12 of the agreement, which likely covers specific obligations of the developer. Additionally, any transfer of rights or obligations requiring CJR's prior written consent that occurs without obtaining such consent is considered a material breach.
Other breaches include making material misrepresentations or omitting material facts in information furnished to CJR during the agreement process, knowingly falsifying reports, making material misrepresentations in dealings with CJR, or failing to disclose material facts. Criminal convictions of the developer, development principal, or other key individuals for felonies or crimes involving moral turpitude that could adversely affect CJR or the Carl's Jr. system also constitute a breach.
Furthermore, defaults under other agreements with CJR or its affiliates, defaults under real estate leases, equipment leases, or financing instruments related to a franchised restaurant, or defaults with vendors or suppliers, if not cured within the specified timeframes, can lead to termination. Finally, failing to comply with any other provision of the Development Agreement or any requirement of the Carl's Jr. system, and not correcting the failure within 30 days after written notice (10 days for monetary defaults), is also a cause for termination. Note that for non-monetary defaults, an extension of up to 90 days may be granted if the developer begins taking necessary corrective actions.