Under what circumstances is a Fat Shack franchisee deemed in default, allowing FSI to terminate the Development Agreement?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
- (i) Franchisee defaults on any term or condition of this Development Agreement, including without limitation, the failure to execute the required Franchise Agreements or maintain the number of FAT SHACK Restaurants required by the Development Schedule, and fails to cure such default after 30 days written notice to Franchisee; or
- (ii) Franchisee is in default under any of the Franchise Agreements executed in furtherance of this Development Agreement or any other agreement between FSI or any of FSI's affiliates and Franchisee or any of Franchisee's affiliates and fails to cure such default within the time periods specified in such other agreements.
- 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.
- 4.5. In the event of termination or expiration of this Development Agreement for any reason, Franchisee shall not be entitled to any refund of any portion of the fees paid hereunder. Franchisee shall remain subject to the provisions of Article 6 of this Development Agreement regarding nondisclosure and covenants not to compete, in addition to the terms and conditions of any and all franchise agreements executed in furtherance of this Development Agreement which have not also been terminated or expired. No right or remedy herein conferred upon or reserved by FSI is exclusive of any other right or remedy provided or permitted by law or equity.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, a franchisee can be deemed in default of the Development Agreement, leading to potential termination by FSI (Fat Shack Inc.), under the following conditions. First, if the franchisee fails to meet any term or condition of the Development Agreement, including not executing the required Franchise Agreements or maintaining the number of Fat Shack restaurants as per the Development Schedule, and does not rectify this failure within 30 days after receiving written notice from Fat Shack. Second, if the franchisee defaults under any of the Franchise Agreements executed to further the Development Agreement, or any other agreement between FSI (or its affiliates) and the franchisee (or their affiliates), and fails to cure the default within the time specified in those agreements.
However, the document specifies an exception: if the Development Agreement is terminated solely because the franchisee failed to meet the Development Schedule, this termination will not automatically trigger a default or termination of any existing Franchise Agreements. In this specific case, those Franchise Agreements will remain in effect, overriding any conflicting clauses (like cross-default provisions) in the Franchise Agreements themselves. But, if the Development Agreement is terminated due to any other default, Fat Shack has the option to terminate all Franchise Agreements executed under the Development Agreement, along with any other agreements between Fat Shack and the franchisee or their affiliates.
It's important to note that if the Development Agreement is terminated for any reason, the franchisee will not receive a refund of any fees paid under the agreement. Furthermore, the franchisee remains bound by the non-disclosure and non-compete clauses outlined in the Development Agreement, as well as the terms of any Franchise Agreements that remain active. Fat Shack's rights and remedies are not exclusive, meaning they can pursue any other legal or equitable options available to them.