If an Ella Cafe developer ceases to operate a Coffee House, what are their obligations?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
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.
If the transferred Coffee House ceases to be operated as a Coffee House during the Term of this Agreement, Developer must develop a replacement Coffee House within a reasonable time (not to exceed 180 days) thereafter, otherwise, the Coffee House will not count toward Developer's Development Schedule obligations hereunder.
- 4.3.2.
Developer's failure to adhere to the Development Schedule (including any extensions thereof, approved by the Franchisor in writing) or to any time period for the development of replacement Coffee Houses is a material breach of this Agreement for which the Franchisee expressly acknowledges that the Franchisor may, at our sole discretion (i) terminate or modify any territorial protections granted to you, (ii) reduce the size of the Development Area, or (iii) reduce the number of Coffee Houses which you may establish under the Development Schedule.
Source: Item 23 — RECEIPTS (FDD pages 50–181)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, if a developer ceases to operate an Ella Cafe Coffee House for any reason during the term of the Development Agreement, they are obligated to develop a replacement Coffee House. This replacement must be completed within a reasonable timeframe, specifically no more than 180 days after the original Coffee House ceases operation. The FDD clarifies that simply acquiring an existing Coffee House does not fulfill this obligation.
However, there is an exception: if the developer transfers their interest in a Coffee House according to the transfer provisions in the Franchise Agreement, and that Coffee House continues to operate as an Ella Cafe, it will still count toward the developer's obligations under the Development Schedule. But, should that transferred Coffee House cease to operate as an Ella Cafe during the term, the developer must then develop a replacement within 180 days to maintain compliance with their development schedule.
Failure to meet the development schedule, including the timeframe for replacing a closed Coffee House, constitutes a material breach of the Development Agreement. In such cases, Ella Cafe has the discretion to take actions such as terminating or modifying any territorial protections granted to the developer, reducing the size of the development area, or reducing the number of Coffee Houses the developer is allowed to establish under the Development Schedule. This underscores the importance of adhering to the agreed-upon development timeline and maintaining continuous operation of the required number of Ella Cafe locations.