Under what circumstances would a Noodles & Company franchisee be required to pay a continuing royalty after the termination of the Franchise Agreement?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
6.03 Continuing Royalty Upon Default. Should this Agreement terminate due to a material breach or default by you, or should you fail to continuously operate your Noodles & Company Restaurant without our prior written approval to cease continuous operations, you shall pay to us for each Reporting Period remaining in the entire initial term of the Agreement a continuing royalty in an amount equal to the total Royalty Fees due from you for the preceding fifty-two (52) Reporting Periods divided by fifty-two (52). If your Noodles & Company Restaurant was open fewer than fifty-two (52) Reporting Periods, then the average of all Reporting Periods for which you were open shall be used.
Source: Item 23 — RECEIPT (FDD pages 99–350)
What This Means (2025 FDD)
According to the 2025 Noodles & Company Franchise Disclosure Document, a franchisee may be obligated to pay continuing royalty fees even after the termination of the Franchise Agreement. This occurs if the agreement terminates due to a material breach or default by the franchisee, or if the franchisee fails to continuously operate their Noodles & Company restaurant without prior written approval from Noodles & Company to cease operations.
In such cases, the franchisee must pay Noodles & Company a continuing royalty for each remaining Reporting Period in the entire initial term of the agreement. The amount of this continuing royalty is calculated based on the total Royalty Fees due from the franchisee for the preceding fifty-two (52) Reporting Periods, divided by fifty-two (52). If the restaurant was open for fewer than fifty-two Reporting Periods, the average of all Reporting Periods for which the restaurant was open will be used to calculate the continuing royalty.
This provision ensures that Noodles & Company continues to receive compensation for the unexpired term of the agreement, even if the franchisee's operation ceases due to default or breach. It is a significant financial obligation that a prospective Noodles & Company franchisee should carefully consider, as it could result in substantial payments even after the restaurant is no longer operating. Franchisees should be aware of what constitutes a 'material breach' and the importance of obtaining written approval before ceasing operations to avoid triggering this clause.