If Chatime terminates a Developer's Development Rights, does the Developer still have the right to operate existing Chatime Outlets in the Development Area during the Initial Term?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
- (2) Subject to clause 2.5(3), termination of Developer's Development Rights pursuant to clause 2.5(1) is without prejudice to Developer's right to operate Outlets already developed under this Agreement and in operation in the Development Area during the Initial Term.
(3) If Developer's Development Rights are terminated by Franchisor pursuant to clause 2.5(1), all other rights otherwise granted pursuant to this Agreement automatically become nonexclusive.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, if Chatime terminates a Developer's Development Rights for failing to meet the Development Quota or any financial obligation, the Developer generally retains the right to operate existing Chatime Outlets already developed and in operation within the Development Area during the Initial Term. However, this right is subject to an important condition.
Specifically, the FDD states that while the termination of Development Rights does not automatically negate the right to operate existing outlets, all other rights granted to the Developer become nonexclusive. This means that Chatime could then grant other parties the right to develop and operate Chatime franchises within the same Development Area, effectively removing the Developer's exclusive territory.
This clause protects a Developer's investment in already-operational Chatime stores, but it also significantly reduces the value of the development agreement if Chatime terminates the Development Rights. The Developer can continue to profit from existing stores, but they will face potential competition from new Chatime locations within their original territory. Prospective developers should carefully consider the implications of failing to meet development quotas and the potential loss of exclusivity.