Does this excerpt of the Del Taco Development Incentive Program Addendum specify any exceptions to the standard development agreement?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
Whereas, Del Taco and the Developer wish to modify certain provisions of the Development Agreement as set forth below;
Now, therefore, in consideration of the covenants and agreements set forth in the Development Agreement and this Addendum, the parties hereby agree as follows:
Development Incentive Program. For so long as Developer 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 Franchise Agreement executed pursuant to 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.
Adherence to Development Schedule. The Developer 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 Developer 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, Developer shall immediately pay to Del Taco the amount of any reduction in the Initial Franchise Fees or Royalty Fees.
Transferability. The Developer shall not have any rights to transfer this Addendum or the rights granted to the Developer by it.
No Other Modifications. Except as specifically set forth in this Addendum, the terms of the Development 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 does modify certain provisions of the standard Development Agreement. Specifically, the addendum outlines a reduction in the royalty fees for developers who meet certain conditions. This modification is designed to incentivize development in markets that Del Taco identifies as undeveloped or emerging.
Under the Development Incentive Program, the standard royalty fee of 5% of Net Sales is reduced on a graduated scale for a defined period. For the first year of a restaurant's operation, the royalty fee is reduced to 1% of Net Sales, increasing to 2% in the second year, 3% in the third year, and 4% in the fourth year, before returning to the standard 5% in the fifth year and all subsequent years. This incentive is applicable only if the developer and its affiliates remain fully compliant with the terms of the Development Agreement, Franchise Agreement, and any other agreements with Del Taco.
However, the addendum also stipulates that these development incentives are contingent upon adherence to the development schedule outlined in the Development Agreement. If a developer breaches either the Development Agreement or the Franchise Agreement, they will be required to immediately repay Del Taco the amount of any reduction in Initial Franchise Fees or Royalty Fees they have benefited from. Furthermore, the addendum explicitly states that it is non-transferable, and except for the modifications specifically outlined within it, all other terms of the Development Agreement remain unchanged and in full effect. This ensures that while certain financial incentives are provided, the core obligations and responsibilities of the developer under the original agreement are maintained.