Under what circumstances is Del Taco required to fairly compensate a franchisee upon non-renewal?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
- (d) A provision that permits a franchisor to refuse to renew a franchise without fairly compensating the franchisee by repurchase or other means for the fair market value at the time of expiration of the franchisee's inventory, supplies, equipment, fixtures, and furnishings.
Personalized materials which have no value to the franchisor and inventory, supplies, equipment, fixtures, and furnishings not reasonably required in the conduct of the franchise business are not subject to compensation.
This subsection applies only if: (i) the term of the franchise is less than 5 years, and (ii) the franchisee is prohibited by the franchise or other agreement from continuing to conduct substantially the same business under another trademark, service mark, trade name, logotype, advertising, or other commercial symbol in the same area subsequent to the expiration of the franchise or the franchisee does not receive at least 6 months advance notice of franchisor's intent not to renew the franchise.
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 42–46)
What This Means (2025 FDD)
According to the 2025 Del Taco Franchise Disclosure Document, Del Taco may be required to compensate a franchisee upon non-renewal under specific conditions outlined within the Virginia Retail Franchising Act. This compensation is mandated if (i) the franchise term is less than 5 years, and (ii) the franchisee is restricted from operating a similar business in the same area under a different brand after the franchise expires, or if the franchisee does not receive at least 6 months' advance notice that Del Taco will not renew the franchise agreement.
If these conditions are met, Del Taco must fairly compensate the franchisee for the fair market value of their inventory, supplies, equipment, fixtures, and furnishings at the time of expiration. However, this compensation does not extend to personalized materials that hold no value for Del Taco, or to inventory, supplies, equipment, fixtures, and furnishings that are not reasonably required for operating the franchise business.
This provision aims to protect franchisees who have invested in their Del Taco business and face limitations on their ability to continue operating a similar business after the franchise term ends. By requiring fair compensation, the law mitigates potential financial losses for franchisees in these specific circumstances. Prospective franchisees should carefully review the terms of the franchise agreement and understand the conditions under which compensation for non-renewal is applicable, particularly if they anticipate a shorter franchise term or restrictions on future business activities.