What happens to existing Fat Shack Franchise Agreements if the Development Agreement is terminated solely due to failure to meet the Development Schedule?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
- 4.4. If this Development Agreement is terminated due solely to a failure by Franchisee to meet the Development Schedule, FSI and Franchisee agree that such termination shall not constitute a default or result in a termination of any Franchise Agreements executed between Franchisee and FSI in effect as of the date of termination of this Development Agreement. In that case, those Franchise Agreements shall continue in full force and effect notwithstanding the termination of this Development Agreement. FSI and Franchisee agree that any statements to the contrary in the Franchise Agreements executed by them, including any cross-default and cross-termination provisions, will be inapplicable in the situation of a termination of this Development Agreement based solely on Franchisee's failure to meet the Development Schedule. If this Development Agreement is terminated due to any other default under Section 4.3 above, all Franchise Agreements executed in furtherance of this Development Agreement and all other agreements between FSI and Franchisee or any of Franchisee's affiliates may, at FSI's sole option, be terminated.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, if a Development Agreement is terminated exclusively because the franchisee failed to meet the Development Schedule, the existing Franchise Agreements between the franchisee and Fat Shack Inc. (FSI) will remain in full effect. This means that even though the franchisee did not fulfill the obligations to open a certain number of Fat Shack restaurants as planned, the Fat Shack restaurants that are already operating under existing Franchise Agreements can continue to operate.
Fat Shack clarifies that any clauses within the Franchise Agreements that might suggest a cross-default or cross-termination due to the Development Agreement's termination will not apply in this specific situation. This protects the franchisee's existing Fat Shack locations from being shut down simply because the development schedule wasn't met. However, if the Development Agreement is terminated due to any other type of default by the franchisee, Fat Shack retains the option to terminate all Franchise Agreements executed under the Development Agreement.
This provision offers a degree of security for franchisees who have successfully opened Fat Shack locations but are struggling to meet the expansion timeline outlined in their Development Agreement. It's important for prospective Fat Shack franchisees to understand the specific conditions under which their existing franchise agreements are protected, and when Fat Shack has the right to terminate all agreements. Franchisees should carefully review the Development Agreement and Franchise Agreements to fully understand their obligations and rights.