What is the purpose of the Royalty Fee 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.
Source: Item 23 — RECEIPTS (FDD pages 59–325)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, the Royalty Fee is a percentage of Net Sales, with the standard rate being 5%. However, the FDD outlines a Development Incentive Program that can reduce this fee for a specific period.
For developers who meet certain criteria, such as adhering to the development schedule in their Development Agreement and remaining compliant with all agreements with Del Taco, the Royalty Fee can be reduced for the initial years of a restaurant's operation. Specifically, the royalty fee is reduced to 1% of Net Sales for the first year, 2% for the second, 3% for the third, and 4% for the fourth year, before returning to the standard 5% for all subsequent years. This incentive applies to the first two restaurants opened under the Development Agreement.
This reduction in royalty fees is designed to support and encourage development, providing financial relief during the critical early stages of a new Del Taco restaurant. However, franchisees must adhere to the development schedule; failure to do so means they will immediately have to pay Del Taco the amount of any reduction in the Initial Franchise Fees or Royalty Fees they have received. This ensures compliance and commitment to the agreed-upon development plan.