What happens to the royalty fee and APO for a Carls Jr. restaurant if the Addendum is terminated?

According to the 2025 Carls Jr. Franchise Disclosure Document, if the Addendum is terminated, the royalty fee and APO (Advertising Promotion Obligation) for the franchised restaurant will revert to the amounts specified in the original Franchise Agreement. This change takes effect immediately upon termination of the Addendum.

Termination of the Addendum can occur if the franchisee fails to open the restaurant within 120 days of the contractual opening date, or if the franchisee receives a notice of default under any agreement with Carls Jr. or its affiliates during the first three years of operation and fails to resolve the default within the given cure period.

During the first three years of operation with the Addendum in effect, Carls Jr. reduces the royalty fee and APO. Specifically, the royalty fee is reduced by 3% of gross sales for the first year, 2% for the second year, and 1% for the third year. Additionally, the APO fee is reduced to 2% of gross sales during the initial term. After the initial three-year period, the royalty fee reverts to 5% of gross sales, and the APO reverts to 5.5% of gross sales. Therefore, termination of the addendum would result in the franchisee paying higher royalty and APO fees sooner than expected.

Prospective Carls Jr. franchisees should carefully review the conditions under which the Addendum can be terminated and understand the financial implications of such termination on their royalty and APO obligations. Understanding the terms of both the Addendum and the original Franchise Agreement is crucial for managing costs and maintaining compliance.