Does acquiring existing Coffee Houses fulfill an Ella Cafe developer's obligation to develop replacement Coffee Houses?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
ult under Section 9.2 of this Agreement. Developer may, subject to the terms and conditions of this Agreement, and with Franchisor's prior written consent, which may be withheld in its sole discretion, develop more than the total minimum number of Coffee Houses which Developer is required to develop during any Development Period. Any Coffee Houses in excess of the minimum number of Coffee Houses required to be developed will be applied to satisfy Developer's development obligation during the next succeeding Development Period, if any. Notwithstanding the above, this Agreement does not grant Developer the right to open or operate more than the cumulative total number of Coffee Houses Developer is obligated to develop under the Development Schedule.
- 4.3.1. If, during the Term of this Agreement, Developer ceases to operate any Coffee House developed under this Agreement for any reason, Developer must develop a replacement Coffee House. The replacement Coffee House must be developed within a reasonable time (not to exceed 180 days) after Developer ceases to operate the original Coffee House, and the acquisition of existing Coffee Houses will not serve to meet Developer's obligations under this Section 4.3. However, if, during the Term of this Agreement, Developer transfers its interest in a Coffee House in accordance with the transfer provisions set forth in the applicable Franchise Agreement for the Coffee House, the transferred Coffee House will continue to be counted in determining whether or not Developer has complied with the Development Schedule, provided that such Coffee House continues to be operated as a Coffee House.
Source: Item 23 — RECEIPTS (FDD pages 50–181)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, acquiring existing coffee houses does not fulfill a developer's obligation to develop replacement Coffee Houses. If a developer ceases to operate an Ella Cafe location developed under their agreement, they must develop a replacement within a reasonable time, not exceeding 180 days.
However, if the developer transfers their interest in a Coffee House according to the franchise agreement's transfer provisions, the transferred Coffee House will still count towards meeting the development schedule, provided it continues to operate as an Ella Cafe. If the transferred Coffee House ceases operation as an Ella Cafe during the agreement term, the developer must develop a replacement within 180 days; otherwise, it will not count toward the development schedule obligations.
Failure to meet the development schedule or the timeframe for developing replacement Coffee Houses constitutes a material breach of the agreement. In such cases, Ella Cafe has the discretion to terminate or modify territorial protections, reduce the development area size, or decrease the number of Coffee Houses the developer can establish under the schedule. This underscores the importance of adhering to the development schedule and maintaining continuous operation of Ella Cafe locations to avoid potential penalties.
This policy ensures that Ella Cafe maintains its planned growth and market presence, preventing developers from simply acquiring existing businesses instead of developing new locations as agreed. Prospective developers should carefully consider these obligations and the potential consequences of non-compliance before entering into a development agreement with Ella Cafe.