Is the development fee refundable if the SDAA is terminated with Potbelly Sandwich Works?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
Under the SDAA, designate a specific number of Shops you may develop and open at acceptable locations within your development area. If we accept a proposed site, you must within the time period we specify sign a separate franchise agreement (and related documents) for that Potbelly Shop (on our then-current forms) and pay us the remaining portion of the initial franchise fee due. (This applies for Shops you commit to develop under the SDAA after the 1st Shop, as you will sign the Franchise Agreement for the 1st Shop when you sign the SDAA). If you fail to do so, or cannot obtain lawful possession of the proposed site, we may withdraw our acceptance of the proposed site. If you do not find acceptable sites and therefore do not comply with the development schedule under the SDAA, we may terminate the SDAA (SDAA – Section 8.A). The development fee is not
- refundable. (SDAA Section, 2, 4 and 6) We will accept the proposed locations of your additional Shops only if they meet our then-current standards for Shop sites.
Source: Item 11 — FRANCHISOR'S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS, AND TRAINING (FDD pages 37–49)
What This Means (2025 FDD)
According to Potbelly Sandwich Works' 2025 Franchise Disclosure Document, the development fee paid under the Store Development Area Agreement (SDAA) is not refundable. Specifically, if Potbelly Sandwich Works accepts a proposed site, the franchisee must sign a separate franchise agreement and pay the remaining initial franchise fee. However, if the franchisee fails to do so or cannot obtain lawful possession of the site, Potbelly Sandwich Works may withdraw its acceptance. Additionally, if the franchisee does not find acceptable sites and fails to comply with the development schedule under the SDAA, Potbelly Sandwich Works may terminate the SDAA. Despite these potential termination scenarios, the development fee remains non-refundable.
This policy means that a prospective Potbelly Sandwich Works franchisee entering into an SDAA bears the risk of losing the development fee if they are unable to fulfill the development obligations outlined in the agreement. This could occur due to difficulties in securing suitable locations or failure to meet the required development timeline. The non-refundable nature of the development fee underscores the importance of careful planning and due diligence before entering into an SDAA with Potbelly Sandwich Works.
Franchisees should carefully evaluate their ability to meet the development schedule and secure suitable locations before committing to an SDAA. Understanding the terms and conditions of the SDAA, including the non-refundable nature of the development fee, is crucial for making an informed investment decision. This is a fairly standard practice in the franchise industry, as development fees are used to compensate the franchisor for the time, resources, and lost opportunity costs associated with reserving a territory for a specific developer.