What constitutes a material breach of the Costa Vida Fresh Mexican Grill development agreement?
Costa_Vida_Fresh_Mexican_Grill Franchise · 2025 FDDAnswer from 2025 FDD Document
You must have open and operating in the Development Area, in accordance with and pursuant to signed Franchise Agreements, that cumulative number of Costa Vida Restaurants set forth in Exhibit A by the corresponding dates set forth therein ("Development Schedule"). Time is of the essence in this Agreement, and any requests by you to extend the Development Schedule may be granted or denied by us for any reason or no reason. Your failure to develop and operate Costa Vida Restaurants in accordance with the Development Schedule is a material breach of this Agreement for which we have the right to exercise any and all rights and remedies conferred under this Agreement and applicable law, including the right, in our sole discretion, to: (1) terminate this Agreement pursuant to Section 9.B below without prejudice to our recovery of damages; or (2) require you to pay to us (i) on demand, a fee equal to the initial franchise fees that would have been due under the franchise agreements you would have entered into if you had complied with the Development Schedule (the "Development Deficiency Initial Fee") for each Costa Vida Restaurant that you have so failed to open; and (ii) from and after this breach (until the failure to meet the Development Schedule is cured) an amount equal to the average royalties received by us from all Costa Vida Restaurants for each Costa Vida Restaurant that you have so failed to open (the "Development Deficiency Royalty Fees"), all of which amounts (inclusive of the Development Deficiency Initial Fee and the Development Deficiency Royalty Fees) represent liquidated damages. Such damages are difficult to calculate with certainty, but the foregoing represents a reasonable estimate of the damages we will incur as a result of your failure to comply with the Development Schedule. The Development Deficiency Initial Fees and the Development Deficiency Royalty Fees are not refundable under any circumstances, provided the Development Deficiency Initial Fees shall be creditable against the initial franchise fees payable under Franchise Agreements signed pursuant to this Agreement. This Section 2.C shall survive the expiration or termination of this Agreement and shall continue in full force and effect until satisfied in full or by its nature expires.
Source: Item 23 — RECEIPTS (FDD pages 67–282)
What This Means (2025 FDD)
According to Costa Vida Fresh Mexican Grill's 2025 Franchise Disclosure Document, a material breach of the development agreement includes failing to meet the development schedule outlined in Exhibit A. The development schedule specifies the cumulative number of Costa Vida Fresh Mexican Grill restaurants the franchisee must have open and operating in the Development Area by certain dates.
Time is of the essence in the development agreement, meaning that Costa Vida Fresh Mexican Grill may deny requests to extend the development schedule for any reason. If a franchisee fails to meet the development schedule, Costa Vida Fresh Mexican Grill has the right to exercise all available rights and remedies, including terminating the agreement or requiring the franchisee to pay a Development Deficiency Initial Fee and Development Deficiency Royalty Fees.
The Development Deficiency Initial Fee is equal to the initial franchise fees that would have been due under the franchise agreements had the franchisee complied with the development schedule for each restaurant they failed to open. The Development Deficiency Royalty Fees are equal to the average royalties received by Costa Vida Fresh Mexican Grill from all restaurants for each restaurant the franchisee failed to open, beginning from the breach date until the failure is cured. These fees are considered liquidated damages, representing a reasonable estimate of the damages Costa Vida Fresh Mexican Grill will incur due to the franchisee's failure to comply with the development schedule. These fees are non-refundable but the Initial Fee can be credited towards future franchise fees.