If Chatime terminates a Developer's Development Rights, what happens to the other rights granted to the Developer in the agreement?
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 due to failure to meet the Development Quota or comply with financial obligations, all other rights granted to the Developer under the agreement automatically become nonexclusive. However, the termination of the Development Rights does not automatically affect the Developer's right to operate Chatime Outlets already developed and in operation within the Development Area during the Initial Term, as long as the developer adheres to the agreement.
This means that while the Developer loses the exclusive right to develop new Chatime stores in the area, they can continue to operate any existing stores they have already established. Chatime then has the option to develop and operate franchises in the Development Area themselves or grant that right to a third party.
For a prospective Chatime franchisee, this clause highlights the importance of meeting the Development Quota and complying with all financial obligations. Failure to do so not only results in the termination of Development Rights but also the loss of exclusivity, potentially leading to increased competition within their Development Area. It is important to note that the franchisor has absolute discretion in these matters.