What happens to the Royalty Fee calculation for a Cicis franchise if the franchisee is not in good standing?
Cicis Franchise · 2025 FDDAnswer from 2025 FDD Document
Provided you remain a participant in the Program (as we determine in our sole discretion) and are in good standing, for Net Sales generated through the 1st anniversary of the Opening Date of the Restaurant, the Royalty Fee will be calculated at 3% of those Net Sales; and for Net Sales generated from the day following the 1st anniversary of the Opening Date through the 2nd anniversary of the Opening Date, the Royalty Fee will be calculated at 4% of those Net Sales. If, at any time prior to the 2nd anniversary of the Opening Date, you cease to be either approved to participate in the Program or in good standing, the foregoing Royalty Fee reductions will automatically, and without any further notice, be null and void, and the Royalty Fee will thereafter be calculated as described in Section 4.C without regard to this paragraph.
Source: Item 23 — RECEIPTS (FDD pages 65–263)
What This Means (2025 FDD)
According to the 2025 Cicis Franchise Disclosure Document, a franchisee's "good standing" impacts the royalty fee calculation, particularly during the initial years of operation. Several incentive programs modify the standard royalty fee structure, offering reduced rates contingent on the franchisee remaining in good standing.
For instance, under one program, the royalty fee is calculated at 3% of Net Sales for the first year and 4% for the second year, provided the franchisee remains in good standing. However, if the franchisee ceases to be in good standing at any time before the second anniversary of the opening date, these reduced royalty fee calculations become void. The royalty fee will then be calculated as described in the Franchise Agreement, without regard to the reduced rates offered by the incentive program.
Similarly, another incentive program offers a 2% royalty fee on Net Sales from the effective date through the day preceding the first anniversary and 3% from the first to the second anniversary, again contingent on maintaining good standing. If the franchisee loses good standing, they revert to the royalty fee specified in Section 4.C of the Franchise Agreement. Cicis retains sole discretion to determine whether particular obligations are "material" for purposes of determining good standing, and their decision is final. This means that failure to comply with any material obligation, as determined by Cicis, could result in the loss of reduced royalty fee benefits.