What is the dependency between exercising development rights and entering into a Franchise Agreement with FSI for a Fat Shack Restaurant?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
- 3.1. Franchisee will be bound by and strictly follow the schedule for developing the FAT SHACK Restaurants in the Protected Area set forth in the Addendum (the "Development Schedule"). Time is of the essence. By the date set forth under the Development Schedule for each applicable FAT SHACK Restaurant, Franchisee must exercise its development rights by entering into a Franchise Agreement with FSI for that FAT SHACK Restaurant. Further, Franchisee shall itself continuously maintain in operation at least the number of FAT SHACK Restaurants set forth on the Development Schedule.
- 3.2. Franchisee will exercise its right for development of each FAT SHACK Restaurant by giving FSI written notice of its intention to develop such FAT SHACK Restaurant at least 90 days in advance of the deadline set forth in the Development Schedule for executing each Subsequent Franchise Agreement. Subject to FSI's approval, Franchisee must execute the then-current form of Franchise Agreement for the particular FAT SHACK Restaurant and pay the balance of the Initial Franchise Fee, together with all other initial fees and deposits set forth in the applicable Subsequent Franchise Agreement by the deadline set forth in the Development Schedule. FSI will execute a Franchise Agreement with Franchisee only if Franchisee is in compliance with all requirements and obligations of this Development Agreement and all other agreements between the parties, including the individual Franchise Agreements between FSI and Franchisee. Franchisee acknowledges and agrees that FSI will have the right to refuse to offer Franchisee the right to enter into a Subsequent Franchise Agreement if FSI believes, in its discretion, that Franchisee does not have sufficient financial resources or other ability to properly develop and operate the proposed subsequent FAT SHACK Restaurant. The Subsequent
Franchise Agreement for the second and each subsequent FAT SHACK Restaurant will be executed within 10 days after FSI's approval of the particular FAT SHACK Restaurant location. Franchisee's failure to execute any Subsequent Franchise Agreement or its default in any term of any Subsequent Franchise Agreement may, at the option of FSI, be deemed a default under this Development Agreement and shall entitle FSI to terminate this Development Agreement as further provided in Article 4 below.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, a franchisee's ability to develop Fat Shack restaurants within a protected area is directly tied to entering into a Franchise Agreement with FSI (Franchise Systems International) for each specific location. The franchisee must adhere to a development schedule outlined in an addendum, and time is of the essence. To exercise development rights for each Fat Shack Restaurant, the franchisee must enter into a Franchise Agreement with FSI by the date specified in the development schedule.
Specifically, the franchisee must provide written notice to FSI of their intent to develop a restaurant at least 90 days before the deadline for executing the Franchise Agreement, as per the development schedule. The franchisee must then execute the current Franchise Agreement form and pay the remaining Initial Franchise Fee, along with any other initial fees and deposits, by the specified deadline. FSI will only execute a Franchise Agreement if the franchisee is compliant with all obligations under the Development Agreement and other agreements, including existing individual Franchise Agreements.
FSI retains the right to refuse a Subsequent Franchise Agreement if it believes the franchisee lacks the financial resources or ability to properly develop and operate the new Fat Shack Restaurant. The Subsequent Franchise Agreement for each restaurant must be executed within 10 days of FSI's location approval. Failure to execute any Subsequent Franchise Agreement or defaulting on any of its terms can be considered a default under the Development Agreement, potentially leading to its termination by FSI. This arrangement ensures that Fat Shack maintains control over the pace and quality of development within a protected area, while also protecting its brand and reputation.
This dependency is a fairly standard practice in multi-unit franchise agreements, as it allows the franchisor to maintain control over the expansion and ensure that franchisees are meeting their development obligations. Prospective Fat Shack franchisees should carefully review the development schedule and ensure they have the financial resources and operational capabilities to meet the required timelines.