What is the purpose of the Development Agreement for Del Taco franchisees?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
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W I T N E S S E T H:
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.
Executed and delivered as of the date of the Franchise Agreement.
Source: Item 23 — RECEIPTS (FDD pages 59–325)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, the Development Agreement grants a developer limited exclusive rights to develop Del Taco restaurants within a specific area, as outlined in Exhibit B of the agreement. This exclusivity means that Del Taco will not establish or franchise others to establish Del Taco restaurants in the designated Development Area during the agreement's term, provided the developer complies with all terms and conditions. The developer is obligated to submit Site Approval Packages and adhere to the Development Schedule for opening restaurants. The agreement clarifies that it is not a franchise agreement and does not grant the developer the right to use the Del Taco System until a separate Franchise Agreement is executed for each location. The developer also cannot license others to use the Del Taco System under the Development Agreement.
The Development Agreement specifies that it expires upon the required opening date of the last restaurant in the Development Schedule or the actual opening date, whichever comes first, unless terminated earlier. Time is considered of the essence in fulfilling the agreement's obligations. In exchange for these Development Rights, the developer must pay Del Taco a non-refundable Development Fee of $35,000 for the first restaurant and $10,000 for each additional restaurant, payable upon signing the agreement. Upon the execution of a Franchise Agreement for a specific location, Del Taco will credit $35,000 (for the first restaurant) and $10,000 (for each subsequent restaurant) from the Development Fee towards the initial franchise fee for that restaurant.
Furthermore, the Development Agreement includes incentives for franchisees who develop multiple Del Taco restaurants. Franchisees who commit to developing at least five restaurants may qualify for a Development Incentive Program. Under this program, the Royalty Fee, normally 5% of Net Sales, is reduced for the first two restaurants opened. The royalty is reduced to 1% for the first year, increasing by 1% each year until it reaches the standard 5% in the fifth year. To maintain eligibility for these incentives, the franchisee must adhere to the development schedule outlined in the Development Agreement and remain compliant with all agreements with Del Taco. Failure to comply results in the franchisee immediately owing Del Taco the amount of any reduction in Initial Franchise Fees or Royalty Fees received.