Is the Development Fee for Potbelly Sandwich Works fully earned when paid?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
o right to renew or extend your rights under this SDAA.
- 2.02 Development Fee. In consideration of our execution of this SDAA, you agree to pay us a development fee equal to the sum of $40,000 for your first Potbelly Shop and $20,000 times the aggregate number of additional franchised Potbelly Shops which you are required to establish and operate pursuant to this SDAA (the "Development Fee"). The Development Fee is payable in full when you sign this SDAA and will be fully earned when paid. You recognize that we have incurred administrative and other expenses in relation to this SDAA, and that our development opportunities have been lost or curtailed as a result of the territorial rights granted to you in this SDAA. Therefore, we will not refund the Development Fee in whole or in part, under any circumstance.
The Development Fee will be applied against the initial franchise fee that will be payable under the franchise agreements for each of your Potbelly Shops (each, an "Initial Franchise Fee"). Each Initial Franchise Fee will be reduced by the amount of the Development Fee you paid for that Potbelly Shop, that is, by $40,000 for your first Potbelly Shop and by $20,000 for your second and subsequent Potbelly Shops. The Initial Franchise Fee against which the Development Fee will be credited will be our then-current Initial Franchise Fee for each Potbelly Shop opened under this SDAA. You will pay the remaining balance (if any) of the Initial Franchise Fee for each Potbelly Shop to be opened pursuant to this SDAA on the date you sign the franchise agreement for the Potbelly Shop.
- 2.03 Development Rights.
Source: Item 23 — RECEIPTS (FDD pages 79–355)
What This Means (2025 FDD)
According to Potbelly Sandwich Works's 2025 Franchise Disclosure Document, the Development Fee is considered fully earned upon payment. This fee compensates Potbelly Sandwich Works for administrative expenses and lost development opportunities resulting from granting territorial rights to the franchisee. The Development Fee is non-refundable under most circumstances.
Specifically, the Development Fee is $40,000 for the first Potbelly Shop and $20,000 for each additional shop under the agreement. This fee is payable in full when the franchisee signs the SDAA (Site Development Area Agreement). The Development Fee is then applied as a credit toward the initial franchise fee for each Potbelly Sandwich Works location opened under the development agreement.
While the Development Fee is generally non-refundable, there is a specific exception. Potbelly Sandwich Works will refund the unapplied portion of the Development Fee only if the agreement is terminated under Section 8.02(j), which relates to situations where new legislation or regulations adversely affect Potbelly Sandwich Works's franchising rights. This means that in most scenarios, franchisees should consider the Development Fee a sunk cost once paid, regardless of whether all planned locations are eventually opened.