Under what conditions will the 2025 DIP Addendum be terminated for a Carls Jr. franchise?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
during the second year of operation; and (iii) 1% of Gross Sales accruing during the 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 5.5% of Gross Sales. If you or any of your affiliates receive, during the initial term 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 2025 DIP 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.
If your Franchised Restaurant qualifies for the CJR 2025 Travel Center Development Incentive and you sign a Development Agreement for more than three and up to nine Franchised Restaurants, then we and you will sign the 2025 Travel Center DIP Addendum attached to this Disclosure Document as Exhibit L. Under the terms of the 2025 Travel Center DIP Addendum and with respect to Gross Sales accruing during the applicable Franchised Restaurant's initial term of operation under the Franchise Agreement, we will reduce the royalty fee by (i) 3% of Gross Sales accruing during the Restaurant's first year of operation; (ii) 2% of Gross Sales accruing during the second year of operation; and (iii) 1% of Gross Sales accruing during the third year of operation. After the third year of operation the royalty fee reverts to 5% of Gross Sales.
Source: Item 6 — Other Fees (FDD pages 28–35)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, the 2025 DIP Addendum can be terminated if the franchisee or any of their affiliates receive a written notice of default under any agreement with CJR or any of its affiliates during the initial term of operation, and fail to cure that default within the applicable cure period. If this occurs, the royalty fee and APO (Advertising Promotion Obligation) for the Carls Jr. franchise will immediately revert to the amounts specified in the Franchise Agreement, effectively canceling the benefits of the DIP Addendum. This applies whether the addendum is the standard 2025 DIP Addendum or the 2025 Travel Center DIP Addendum.
This condition applies regardless of whether the franchisee qualifies for the standard DIP addendum or the Travel Center Development Incentive Program. The Travel Center Development Incentive Program is available to franchisees who sign a Development Agreement for more than three Franchised Restaurants and whose restaurants meet certain location and signage requirements. The standard DIP addendum applies to franchisees whose restaurants do not meet the requirements of the Travel Center Program or who open on an address-only basis without a Development Agreement.
For a prospective Carls Jr. franchisee, this means that maintaining compliance with all agreements is crucial to retaining the reduced royalty and APO fees offered by the DIP Addendum. Failure to address and resolve any defaults in a timely manner could result in a significant increase in these fees, impacting the restaurant's profitability. It is important to carefully review all agreements and understand the terms and conditions to avoid potential defaults and ensure the continued benefits of the DIP Addendum.