What are the specific obligations of a Chatime franchisee regarding site selection (Item 9) and how do these obligations relate to the franchisor's approval process mentioned in Item 12, considering the potential for competition from other franchisees?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisor may from time to time modify site selection criteria and processes. Developer must use the site selection criteria and processes as approved by Franchisor (Development Area Site Selection Criteria) for the selection of sites in the Development Area.
(2) Developer must select sites in the Development Area that it reasonably believes conform with the Development Area Site Selection Criteria.
We will provide you with our site selection criteria and we will designate a geographic area in which you must select the site. We do not select the site. We will review your proposal for the site location. Your site must be approved by us and developed by you in accordance with our requirements. If you sign a Multi-Unit Development Agreement, you must find a suitable location for each additional location in time to meet the development schedule. We will approve each additional location under the Multi-Unit Development Agreement using our then-current site criteria. We will not reimburse you for any costs you incur for any location you submit to us for review and approval. (Clauses 4.7, 4.8 and 4.9 of the Franchise Agreement).
The time limit for us to approve or disapprove a proposed site is within 30 days of your submission. If we do not approve a proposed site, we will provide a written notice to you (i) specifying that approval is withheld, and (ii) setting out the reasons approval is withheld. If any additional information is requested by us for a proposed site, the 30 day-period will restart on the date of our receipt of any such additional information. (Clauses 4.7, 4.8 and 4.9 of the Franchise Agreement). If we cannot agree on a site, we may terminate your franchise agreement and your initial fee will be forfeited.
We may approve or disapprove a proposed site in our discretion. Factors affecting our approval generally include location, occupancy costs, proximity to major retail activity, traffic volume and speed, density of nearby population (resident or daytime), competition and potential for encroachment on other Chatime Stores, site configuration, parking, accessibility, visibility, signage permitted by the landlord and local governmental authorities, and other factors. (Clauses 4.7, 4.8 and 4.9 of the Franchise Agreement). You will not begin any construction on a site without our prior approval. (Clause 4.11 of the Franchise Agreement).
Your Franchise Agreement grants you the right to operate a single Chatime Store in a location approved by usin a designated territory ("Territory") identified in your Franchise Agreement. You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control.
There is no minimum Territory. Your Territory will typically be a two-mile radius around your approved location, unless your approved location is located in a major metropolitan downtown area or similarly-situated/populated central business district (a "Central Business District"). If your approved location is located in a Central Business District, your Territory may be limited to a geographic area comprised of anywhere from a radius of two blocks to two miles around your approved location, as we deem appropriate in our discretion. The size of your Territory may vary from the territory granted to other franchisees based on the location and demographics surrounding your approved location.
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, franchisees have several obligations regarding site selection. Chatime may modify site selection criteria and processes, and the franchisee must use the franchisor's approved criteria for selecting sites. The franchisee is responsible for selecting sites that conform to these criteria. Chatime will provide site selection criteria and designate a geographic area for site selection, but the franchisee ultimately finds the location. Chatime must approve the site, and the franchisee must develop it according to Chatime's requirements. If a franchisee signs a Multi-Unit Development Agreement, they must find suitable locations for each additional store according to the development schedule, with each location subject to Chatime's approval based on their current site criteria. Chatime will not reimburse franchisees for any costs incurred during the site selection and approval process.
Chatime has 30 days to approve or disapprove a proposed site from the date of submission or resubmission after additional information is provided. If Chatime disapproves, they must provide a written notice specifying the reasons for disapproval. Failure to agree on a site may result in termination of the franchise agreement and forfeiture of the initial fee. Chatime may approve or disapprove a site at their discretion, considering factors such as location, occupancy costs, proximity to retail activity, traffic volume, population density, competition, potential encroachment on other Chatime stores, site configuration, parking, accessibility, visibility, and signage. Franchisees cannot begin construction without Chatime's prior approval.
Item 12 clarifies that a Chatime franchisee receives the right to operate a single Chatime store in a location approved by Chatime within a designated territory, but this territory is not exclusive. Franchisees may face competition from other franchisees, outlets owned by Chatime, or other distribution channels and competitive brands controlled by Chatime. The territory size typically has a two-mile radius around the approved location, but it may vary in major metropolitan downtown areas or central business districts, ranging from a two-block to a two-mile radius, as determined by Chatime. The boundaries of the territory may be defined by zip codes, streets, landmarks, or county lines. This means that while Chatime provides site selection criteria and approval, the franchisee bears the risk of potential competition within their designated area, highlighting the importance of thorough due diligence during site selection.