Under what agreement is the Royalty Fee paid to Del Taco?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
Whereas, Del Taco and the Developer wish to enter into a Development Agreement for the development of three or more Del Taco Restaurants (the "Restaurant(s)") in a market that Del Taco, in its sole determination, has deemed to be undeveloped or emerging and which Del Taco has identified for further development; and
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.
Source: Item 23 — RECEIPTS (FDD pages 59–325)
What This Means (2025 FDD)
According to the 2025 Del Taco Franchise Disclosure Document, the Royalty Fee is addressed within an addendum to both the Development Agreement and the Franchise Agreement. Specifically, the addendum modifies certain provisions of these agreements to incorporate a Development Incentive Program. This program offers reduced royalty fees for developers who meet specific criteria.
Under the Development Incentive Program, developers who remain compliant with the terms of the Development Agreement, Franchise Agreement, and any other agreements with Del Taco and its affiliates may benefit from a reduced Royalty Fee schedule. This reduced schedule applies to each Franchise Agreement executed under the Development Agreement. The standard Royalty Fee, which is currently 5% of Net Sales, can be reduced to 1% of Net Sales for the first year of operation, increasing to 2%, 3%, and 4% in the subsequent years before returning to the standard 5% in the fifth year and beyond.
To qualify for these development incentives, the developer must adhere to the development schedule outlined in the Development Agreement. Failure to meet this schedule or any breach of the Development Agreement or Franchise Agreement can result in the developer being required to immediately pay Del Taco the amount of any reduction in Initial Franchise Fees or Royalty Fees that they had previously received. This condition underscores the importance of meeting development obligations to maintain the benefits of the incentive program.