Is insolvency a curable default for a Carls Jr. franchise?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
| Provision | Franchise | Summary | |
|---|---|---|---|
| Agreement | |||
| c. | Requirements for you to renew or extend d. Termination by you | Section 2.B. Not Applicable | In order to renew at the end of the Initial Term you must: give timely notice; sign general release; comply with training requirements; be in good standing; not be in default under any agreement with us and our affiliates; not be in default beyond the cure period under any real estate or equipment lease or financing instrument relating to the Franchised Restaurant or any agreement with any vendor or supplier to the Franchised Restaurant; have the right to remain in possession of the Franchised Location for the Renewal Term; remodel in accordance with our then-current standards; and pay a renewal fee. You must also sign our then-current form of Franchise Agreement, the terms of which likely will differ from your original Franchise Agreement, including, without limitation, those relating to royalty fees and advertising obligations. |
| e. | Termination by us without cause | Not Applicable | |
| f. | Termination by us with cause | Section 21 | We may terminate upon default, which includes, but is not limited to, remaining in default beyond any applicable cure period under any agreement with us or our affiliates, including any Development Agreement. |
| g. "Cause" defined– curable defaults | Section 21.B. | You have 10 days to cure monetary defaults. You have 30 days to cure all other defaults except those discussed in paragraph h. below. | |
| h. "Cause" defined – non curable defaults | Sections 21.A., 21.B.(3) & 21.C. | Non-curable defaults include: closure of Franchised Restaurant for more than 5 days; insolvency; bankruptcy; execution levied on your business or property; foreclosure; material breach of covenants; transfer without our prior written consent; material misrepresentation; falsification of reports; failure to open Franchised Restaurant within 60 days after opening is authorized; imminent danger to public health or safety; loss of possession of Franchised Location; felony conviction; breach of representation or warranty; default beyond cure period under other agreements with us or our affiliates; default after receipt of 2 or more notices of default within previous 12 months; and receipt of second consecutive failing score on an inspection. |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION (FDD pages 61–66)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, insolvency is specifically listed as a non-curable default. This means that if a Carls Jr. franchisee becomes insolvent, Carls Jr. has grounds to terminate the franchise agreement without providing an opportunity for the franchisee to rectify the situation.
This is a significant risk for prospective franchisees. Unlike some other defaults, such as failure to meet certain operational standards or payment deadlines (which Carls Jr. typically allows a cure period of 10 to 30 days), insolvency provides no such grace period. The FDD states that Carls Jr. may terminate the franchise agreement immediately upon the occurrence of insolvency.
Other non-curable defaults for a Carls Jr. franchise include closure of the Franchised Restaurant for more than 5 days, bankruptcy, execution levied on your business or property, foreclosure, material breach of covenants, transfer without prior written consent, material misrepresentation, falsification of reports, failure to open Franchised Restaurant within 60 days after opening is authorized, imminent danger to public health or safety, loss of possession of Franchised Location, felony conviction, breach of representation or warranty, default beyond cure period under other agreements with us or our affiliates; default after receipt of 2 or more notices of default within previous 12 months; and receipt of second consecutive failing score on an inspection. A prospective franchisee should carefully consider the implications of these non-curable defaults and assess their own financial stability and operational capabilities before investing in a Carls Jr. franchise.