What is the Development Incentive Program Addendum to Franchise Agreement for Del Taco?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
Whereas, Del Taco and the Franchisee have entered into a Development Agreement for the development of at least 5 or more Del Taco Restaurants (the "Restaurant(s)"); and
Whereas, Del Taco and the Franchisee wish to modify certain provisions of the Franchise Agreement as set forth below;
Now, therefore, in consideration of the covenants and agreements set forth in the Franchise Agreement and this Addendum, the parties hereby agree as follows:
Development Incentive Program. For so long as Franchisee and its affiliates are fully compliant with the terms of the Development Agreement, Franchise Agreement and any other agreements entered into with Del Taco and its affiliates, the following provision shall apply to the first two Restaurants opened under the Development Agreement:
The Royalty Fee (which is currently 5% of Net Sales) will be reduced to: (i) 1% of Net Sales for the first year of a Restaurant's operations; (ii) 2% of Net Sales for the second year of a Restaurant's operations; (iii) 3% of Net Sales for the third year of a Restaurant's operations; (iv) 4% of Net Sales for the fourth year of a Restaurant's operations; and (v) 5% of Net Sales for all subsequent years.
In addition, for so long as Franchisee and its affiliates are fully compliant with the terms of the Development Agreement, Franchise Agreement and any other agreements entered into with Del Taco and its affiliates, the following provision shall apply to each Restaurant opened pursuant to the Development Agreement:
Adherence to Development Schedule. The Franchisee must develop each Restaurant according to the development schedule of the Development Agreement to qualify for the development incentives described in this Addendum. In the event the Franchisee breaches the Development Agreement or Franchise Agreement, in addition to the other rights and remedies available to Del Taco under the Development Agreement and Franchise Agreement, Franchisee shall immediately pay to Del Taco the amount of any reduction in the Initial Franchise Fees or Royalty Fees.
Transferability. The Franchisee shall not have any rights to transfer this Addendum or the rights granted to the Franchisee by it.
No Other Modifications. Except as specifically set forth in this Addendum, the terms of the Franchise Agreement shall remain unchanged and in full force and effect.
Source: Item 23 — RECEIPTS (FDD pages 59–325)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, the Development Incentive Program Addendum to the Franchise Agreement outlines specific royalty fee reductions for franchisees who commit to developing multiple Del Taco restaurants under a Development Agreement. This incentive is designed to encourage and support multi-unit development.
Under this program, for developers who are compliant with the terms of the Development Agreement, Franchise Agreement, and other agreements with Del Taco, the royalty fee is reduced for a specified period. Instead of the standard 5% of Net Sales, the royalty fee is reduced to 1% for the first year, 2% for the second year, 3% for the third year, and 4% for the fourth year of a restaurant's operations. After the fourth year, the royalty fee returns to the standard 5% of Net Sales. This phased royalty structure can significantly lower the initial operating costs for new Del Taco restaurants, providing a financial advantage during the critical early years of operation.
To qualify for these development incentives, the developer must adhere to the development schedule outlined in the Development Agreement. Failure to meet the schedule or any breach of the Development Agreement or Franchise Agreement will result in the franchisee being required to immediately pay Del Taco the amount of any reduction in Initial Franchise Fees or Royalty Fees that they have benefited from. The addendum also specifies that it and the rights granted within it are not transferable, ensuring that the incentives remain with the original developer. Except for the specific modifications detailed in the addendum, all other terms of the Franchise Agreement remain in full effect.