What is the dependency between the transfer of the Fat Shack Development Agreement and the transfer of individual Franchise Agreements?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
lier payment of the Development Fees.
- 5.4. A condition of FSI's approval of a transfer of this Development Agreement is that Franchisee must transfer all of its interest under this Development Agreement, and shall not be permitted to transfer any portion of this Development Agreement separate and apart from the remainder of this Development Agreement. Any transfer shall include the rights to all Franchise Agreements entered into between FSI and Franchisee hereunder. Franchisee and the transferee shall comply with the requirements under each Franchise Agreement entered into between FSI and Franchisee for the transfer of each such Franchise Agreement, including the payment of the applicable transfer fee for each Franchise Agreement.
- 5.5. Franchisee may transfer one or more of the individual Franchise Agreements or any interest in those Franchise Agreements, or all or a substantial portion of the assets of the FAT SHACK Restaurants associated with such Franchise Agreements without a transfer of its interest under this Development Agreement in accordance with the terms of each such Franchise Agreement, provided that the FAT SHACK Restaurant(s) associated with the Franchise Agreement(s) being transferred are open and operating as of the date of the transfer (a "Franchise Transfer"). In that event, (i) the FAT SHACK Restaurant(s) associated with the Franchise Transfer shall continue to be counted as FAT SHACK Restaurant(s) to be developed under this Development Agreement, (ii) the Franchise Agreement(s) associated with the Franchise Transfer shall continue to be included in the cumulative number of FAT SHACK Restaurants required to be opened and continuously operated in the Protected Area, regardless of whether the applicable Franchise Agreement is transferred to the transferee or the transferee executes a new Franchise Agreement, (iii) the exclusive rights granted to Franchisee in this Development Agreement shall be modified to permit the transferee of the Franchise Transfer to operate in the Protected Area, and (iv) a default by the transferee of the Franchise Agreement related to a Franchise Transfer shall constitute grounds for a default to be declared under this Development Agreement pursuant to Section 4.3 hereof.
- 5.6. In the event of any proposed sale, transfer or assignment of its rights under this Development Agreement or any interest in it or all or any part of the franchise development rights, or assets directly or indirectly related to the franchise development rights, Franchisee agrees to grant FSI a 30-day right of first refusal to purchase such rights or assets on the same terms and conditions as are contained in the Initial Franchise Agreement.
6. RESTRICTIVE COVENANTS
6.1. During the term of this Development Agreement, Franchisee and its officers, partners, directors, agents or employees who have completed FSI's training programs or had access to the
Operations Manual, as described in the Initial Franchise Agreement, and/or the beneficial owners of a 5 percent or greater interest in Franchisee and their respective immediate families, shall be subject to all restrictive covenants as set forth in the Initial Franchise Agreement and in any Nondisclosure and Noncompetition Agreements executed in conjunction with the Initial Franchise Agreement, which covenants by this reference are incorporated herein.
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 transfer their Development Agreement is linked to the transfer of individual Franchise Agreements. Specifically, if a Fat Shack franchisee wishes to transfer their Development Agreement, they must transfer their entire interest in the agreement, which includes the rights to all Franchise Agreements they've entered into with Fat Shack. This means a franchisee cannot transfer only a portion of their development rights; the entire package must be transferred together.
However, the Fat Shack franchisee can transfer individual Franchise Agreements, or the assets of a Fat Shack restaurant associated with those agreements, without transferring the Development Agreement itself. In this case, the restaurant associated with the transferred Franchise Agreement still counts toward the development requirements under the original Development Agreement. The area rights granted in the Development Agreement are modified to allow the new owner to operate in the protected area. Also, any default by the new owner of a transferred franchise can be considered a default under the original Development Agreement.
In both scenarios, Fat Shack retains significant control over transfers. For a Development Agreement transfer, Fat Shack's approval is required, and the franchisee must meet certain conditions. For individual Franchise Agreement transfers, the restaurants still count toward the development schedule, and defaults by the new franchisee can impact the original Development Agreement. This ensures Fat Shack maintains consistent brand standards and development progress within the protected area.
Before any transfer of the Development Agreement, Fat Shack has a right of first refusal to purchase the development rights or related assets on the same terms and conditions as the proposed transfer. This gives Fat Shack the option to regain control of the development rights if they choose. The franchisee must also pay a standard transfer fee for each franchise agreement to be transferred, plus $5,000 for every undeveloped franchise right for which no Subsequent Franchise Agreement has been executed.