Under what circumstances can a Potbelly Sandwich Works franchisee terminate the Franchise Agreement?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
he agreements attached to this disclosure document.
| PROVISION | SECTION IN FRANCHISE OR OTHER AGREEMENT | SUMMARY |
|---|---|---|
| of 5 miles of any Potbelly Shop (whether franchised or affiliate or company-owned), whether in operation or under construction on the effective date of termination or expiration; or (c) any entity which grants franchises, licenses or other interests to others to operate any Competitive Business | ||
| s. Modification of the agreement | 17.J. of Franchise Agreement; 10.14 of SDAA | No modifications generally except by written agreement signed by both parties, but we may change Operations Manual and System Standards |
| t. Integration/merger clause | 17.N. of Franchise Agreement; 10.14 of SDAA | Only the Franchise Agreement’s and SDAA’s terms are binding (subject to state law). Any representations or promises outside of the disclosure document and Franchise Agreement may not be enforceable |
| u. Dispute resolution by arbitration or mediation | 17.F. of Franchise Agreement; 10.06 and of SDAA | We and you generally must arbitrate all disputes at location near our principal business address at the time the arbitration demand is filed (it currently is in Chicago, Illinois) |
| v. Choice of forum | 17.H. of Franchise Agreement; 10.07 of SDAA | Subject to arbitration obligation, litigation generally must be in courts located closest to where we have our principal business address at the time the action is commenced (it currently is in Chicago, Illinois) (subject to applicable state law) |
| w. Choice of law | 17.G. of Franchise | Except for federal law, Illinois law |
| Agreement; 10.08 | governs (subject to applicable | |
| of SDAA | state law) | |
| PROVISION | SECTION IN FRANCHISE OR OTHER AGREEMENT | |
| d. | Termination by franchisee | 14.A. of Franchise Agreement; not applicable to SDAA |
| e. | Termination by franchisor without cause | Not Applicable |
| f. | Termination by franchisor with cause | 14.B. of Franchise Agreement and Sections 8.01, 8.02 and 8.04 of SDAA |
| g. | "Cause" defined curable defaults | 14.B. of Franchise Agreement; Section 8.02 of SDAA |
| h. | "Cause" defined non curable defaults | 14.B. of Franchise Agreement and 8 of SDAA |
| PROVISION | AGREEMENT | SUMMARY |
| ----------- | ------------------------------------- | --------------------------------------------------------------------------- |
| failure to operate Shop actively; | ||
| unapproved transfers or surrenders | ||
| of control; material | ||
| misrepresentation or omission; | ||
| conviction of a felony; dishonest, | ||
| unethical, or immoral conduct that | ||
| could materially, adversely affect | ||
| Marks; unauthorized use or | ||
| disclosure of Operations Manual | ||
| or other confidential information; | ||
| you make an unauthorized | ||
| representation or warranty on our | ||
| behalf; loss of right to occupy | ||
| Shop site due to your lease | ||
| default; failure to pay taxes; | ||
| understating Total Revenue by | ||
| certain minimum amounts; | ||
| interfering with our right to | ||
| inspect or observe the Shop; Shop | ||
| fails 3 quality assurance audits | ||
| during 12-month period; your | ||
| Shop fails Annual Shop Review | ||
| during 3 consecutive fiscal years | ||
| or any 5 years (even if not | ||
| consecutive) of the franchise term; | ||
| repeated defaults (even if cured); | ||
| assignment for benefit of | ||
| creditors; |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION (FDD pages 58–65)
What This Means (2025 FDD)
According to Potbelly Sandwich Works' 2025 Franchise Disclosure Document, a franchisee has the right to terminate the Franchise Agreement, as detailed in Section 14.A of the Franchise Agreement. However, this right is 'not applicable to SDAA,' which suggests that the ability to terminate may be limited or not available under the separate Site Development Area Agreement (SDAA) if one exists.
Conversely, Potbelly Sandwich Works has broader termination rights. They can terminate the Franchise Agreement with cause, as outlined in Section 14.B of the Franchise Agreement and Sections 8.01, 8.02, and 8.04 of the SDAA. 'Cause' includes both curable and non-curable defaults. Curable defaults are those the franchisee can fix within a specified time frame after receiving notice from Potbelly Sandwich Works. Non-curable defaults, on the other hand, are serious breaches that Potbelly Sandwich Works can act on immediately.
Non-curable defaults include a range of serious issues such as failing to actively operate the Shop, unauthorized transfers or surrenders of control, material misrepresentations or omissions, a felony conviction, dishonest or unethical conduct that harms the brand, unauthorized use of the Operations Manual, making unauthorized representations on Potbelly Sandwich Works' behalf, losing the right to occupy the Shop site due to lease default, failing to pay taxes, underreporting Total Revenue by certain minimum amounts, interfering with inspections, failing quality assurance audits, failing the Annual Shop Review repeatedly, repeated defaults, assignment for the benefit of creditors, violating anti-terrorism laws, and termination under another franchise agreement. Potbelly Sandwich Works may also terminate the SDAA for reasons such as insolvency, failure to meet the development schedule, unauthorized transfer, misrepresentations, a felony conviction, unauthorized disclosure of confidential information, or any default under a franchise agreement.