Are the payments required upon termination of a Del Taco agreement considered a penalty?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
The payments called for in this Section 14.1.4 are not a penalty.
A precise calculation of the full extent of damages that Del Taco will incur if this Agreement terminates because Franchisee defaults cannot be reasonably determined.
Nevertheless, the parties agree that the lump-sum payment provided under this Section 14.1.4 is reasonable in light of the damages for premature termination that may reasonably be expected to occur in such event.
Franchisee shall also pay to Del Taco, in addition to any amounts then due and owing, all expenses incurred by Del Taco as a result of any default, including reasonable attorneys' fees, expenses, and costs, and interest on such attorneys' fees, expenses, and costs.
- 14.1.5 Return of Manuals and Other Materials.
Franchisee shall immediately deliver to Del Taco the Manuals, plans and specifications, designs, records, data, samples, models, programs, handbooks and drawings relating to Del Taco's operations or business, and all other materials containing Confidential Information (including any copies thereof, even if such copies were made in violation of this Agreement), all of which are acknowledged to be Del Taco's property.
- 14.1.6 No Confusion.
Franchisee agrees that, if it continues to operate or subsequently begins to operate any other business, Franchisee shall not use any reproduction, counterfeit copy, or colorable imitation of the Proprietary Marks, either in connection with such other business or the promotion
Source: Item 22 — CONTRACTS (FDD pages 58–59)
What This Means (2025 FDD)
According to the 2025 Del Taco Franchise Disclosure Document, the payments required upon termination of the agreement are not considered a penalty. Del Taco states that calculating the full extent of damages resulting from a franchisee's default is not reasonably determinable. However, Del Taco and the franchisee agree that the lump-sum payment required under Section 14.1.4 is a reasonable estimate of the damages Del Taco may incur due to premature termination.
In addition to any amounts already owed, the franchisee is responsible for covering all expenses incurred by Del Taco because of any default. This includes reasonable attorneys' fees, expenses, and costs, along with interest on those amounts. Upon termination, the franchisee must also return all manuals, plans, specifications, designs, records, data, samples, models, programs, handbooks, drawings, and other materials containing confidential information to Del Taco.
The franchisee must also avoid any actions that could cause confusion regarding the brand. Specifically, if the franchisee operates another business after the Del Taco franchise terminates, they cannot use any reproduction, counterfeit copy, or imitation of Del Taco's proprietary marks. They also cannot use any designation that suggests a past or present association with Del Taco.