On what sales are Craters & Freighters royalty fees paid when servicing an adjacent territory?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee acknowledges and agrees that it is obligated to pay Royalty Fees to Franchisor, in accordance with Section 3.2 of this Agreement, on all Adjusted Gross Sales (as hereafter defined) from customers residing or operating within the Territory and any Adjacent Territory.
Franchisee acknowledges and agrees that neither the ability to service nor the grant of Franchisor's permission to service customers residing or operating in any Adjacent Territory affords Franchisee any right, title, or interest in or to such Adjacent Territory whatsoever, including the ability to do further business in the Adjacent Territory after it is granted to a third party (including any right to acquire such Adjacent Territory or any right of first refusal as to such Adjacent Territory).
If the right to operate in the Adjacent Territory is subsequently granted by Franchisor to another Craters & Freighters franchisee through the sale of a franchise, Franchisee agrees to, upon receipt of written notice from Franchisor, cease all promotional and advertising efforts within the Adjacent Territory, return to Franchisor all customer data and prospect information related to the Adjacent Territory, and cease providing products and services to customers in the Adjacent Territory.
Source: Item 22 — CONTRACTS (FDD pages 49–50)
What This Means (2025 FDD)
According to Craters & Freighters' 2025 Franchise Disclosure Document, a franchisee is obligated to pay royalty fees on all Adjusted Gross Sales from customers residing or operating within both their designated territory and any adjacent territory they are authorized to service. Adjusted Gross Sales includes the total amounts received from customers for services and products, whether paid by cash, credit, checks, or other means, but excludes sales or service taxes collected and remitted to the appropriate authorities.
This means that if Craters & Freighters grants a franchisee the right to service an adjacent, unsold territory, the franchisee must pay royalty fees on the revenue generated from customers in both their primary territory and the adjacent territory. This obligation continues as long as the franchisee has the right to service the adjacent territory. The FDD does not specify the royalty fee percentage.
It is important to note that the right to service an adjacent territory does not grant the franchisee any ownership or future rights to that territory. If Craters & Freighters awards the adjacent territory to another franchisee, the original franchisee must cease all promotional activities, return customer data, and stop providing services in that adjacent territory upon written notice from Craters & Freighters.