If Chatime terminates a Developer's Development Rights for failing to meet the Development Quota, does the Developer still have the right to operate existing Chatime Outlets?
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, the Developer generally retains the right to operate existing Chatime Outlets already developed and in operation within the Development Area during the Initial Term. This is subject to a specific condition.
Specifically, the termination of Development Rights does not automatically terminate the right to operate existing outlets. However, all other rights granted to the Developer become nonexclusive. This means that while the Developer can continue to operate existing outlets, Chatime is no longer restricted from granting franchises to others within the same Development Area.
This clause protects the Developer's existing investments in already operational Chatime stores, allowing them to continue generating revenue even if they fail to meet the agreed-upon development schedule. However, the loss of exclusivity significantly alters the competitive landscape for the Developer, as Chatime can then authorize new franchises in the area, potentially impacting the Developer's market share and profitability.