Considering a Pita Pit Franchise? Don’t Overlook These 15 Important Franchise Fees

This post was updated on October 2, 2017 to reflect information from Pita Pit’s 2017 FDD (Item 7).

If you are considering a Pita Pit franchise, don’t get blindsided by these 15 important franchise fees (from the initial franchise fee, to the royalty fee, to 13 other fees found in Items 5 and 6 of Pita Pit’s 2017 FDD).

1.  Initial Franchise Fee:  $20,000 to $25,000

• Franchisees must pay Pit Pit a $25,000 lump sum Initial Franchise Fee. This is sometimes referred to as the standard Initial Franchise Fee.

• Pit Pit is a member of the International Franchise Association and participates in the VetFran Program which encourages franchisors to offer discounts to qualified veterans. Pita Pit offers qualified veterans a 20% discount off the Initial Franchise Fee for their first Restaurant upon proof of service and honorable discharge.

• Prior to signing your Franchise Agreement, you must pay Pita Pit the full amount of the Initial Franchise Fee as a deposit (the “Deposit”). Upon receipt of the Deposit, Pita Pit will enter into a Deposit Agreement with you.

• If Pita Pit does not approve you as a franchisee or if you notify Pita Pit in writing that you withdraw your request to enter into a Franchise Agreement, the Deposit will be refunded less a $5,000 fee for reviewing and processing your request. If Pita Pit’s expenses exceed $5,000, it may also deduct those additional expenses from the Deposit.

• If Pita Pit approves you as a franchisee and a Franchise Agreement and all other relevant documents are signed by you and Pita Pit, the entire Deposit will be applied as payment towards the Initial Franchise Fee.

• The Initial Franchise Fee is fully earned by Pita Pit at the time it executes the Franchise Agreement and will only be refunded to you, if it terminates the Franchise Agreement because a suitable lease is not signed by you or Pita Pit, within one year after signing the Franchise Agreement. Pita Pit will deduct from any refund the review and processing fee and other business expenses.

• If Pita Pit terminates the Franchise Agreement because a suitable lease is not signed by you or Pita Pit within two years after signing the Franchise Agreement, you will not be entitled to any refund of the Initial Franchise Fee, which will be fully earned by Pita Pit at that time.

• You must pay any sales tax, use tax, gross receipts tax, or other excise tax imposed on your payments to Pita Pit by the states where it, you, or your franchise are located.

• If Pita Pit obtains the Head Lease for the Restaurant premises, it may also receive the following payments from you before you open your business:  the security deposit and the rent required under the Sublease; and Pita Pit will pay each to the Landlord under the terms of the Head Lease.

2.  Multi-Unit Development Zone Program:  $54,000 to $84,000

• Upon execution of your Development Agreement, the Development Fee you must pay will be determined based upon the number of Restaurants to be opened and operated under the Minimum Development Obligation. The Development Fee will be determined as follows:

• 3 Restaurants:  $18,000 per Restaurant ($54,000 total)
• 4 Restaurants:  $16,000 per Restaurant ($64,000 total)
• 5 Restaurants:  $14,000 per Restaurant ($70,000 total)
• 6 Restaurants:  $13,000 per Restaurant ($78,000 total)
• 7 Restaurants:  $12,000 per Restaurant ($84,000 total)

• The Development Fee is not refundable under any circumstances, but you will not be obligated to pay an Initial Franchise Fee for each Restaurant opened under the Minimum Development Obligation.

• If you are permitted to open more than the required number of Restaurants under your Minimum Development Obligation, the Initial Franchise Fee, unless otherwise agreed upon in writing, will be the then-current Initial Franchise Fee for single-unit new franchisees.

• Because of the special terms you receive under the Development Agreement, the Franchise Agreements entered pursuant to the Minimum Development Obligation will not be eligible for any other special incentives which are currently offered by Pita Pit, such as the Vet Fran discount, a reduced or rebated Initial Franchise Fee, or any other special incentives offered by Pita Pit in the disclosure document or future disclosure documents.

• Prior to signing your Development Agreement, you must pay Pita Pit the full amount of the Development Fee as a deposit (the “Deposit”). Upon receipt of the Deposit, Pita Pit will enter into a Deposit Agreement with you.

• If Pita Pit does not approve you as a Zone Franchisee or if you notify Pita Pit in writing that you withdraw your request to enter into a Development Agreement, the Deposit will be refunded less a fee equal to 15% of the Development Fee. This is for reviewing and processing your request. If Pita Pit’s expenses exceed that amount, it may also deduct those additional expenses from the Deposit.

• If Pita Pit approves you as a Zone Franchisee and a Development Agreement and all other relevant documents are signed by you and Pita Pit, the entire Deposit will be applied as payment towards the Development Fee.

• The Development Fee is fully earned by Pita Pit at the time it executes the Development Agreement.

3.  Continuing Fee:  Pita Pit’s standard Continuing Fee is 6% of Net Sales

• Due Date:  5th of each month.

• Pita Pit is offering the following Continuing Fee structure, for a limited time only, to stimulate development in the current economy. Pita Pit will end this limited offer if its development targets are met or the United States economy improves sufficiently, to be determined at Pita Pit’s sole discretion.

• At the conclusion of the limited time offer, only Franchise Agreements executed at that time will be eligible for these special terms.

• 5% of Net Sales, or

• If you are qualified and enter additional new Franchise Agreements (either for a new location or an existing corporate location, but not as part of a transfer with another franchisee), then your 2nd and 3rd Franchise Agreements are 5% of Net Sales.

• Provided you are still a party to and not in default of your 1st, 2nd, and 3rd Franchise Agreements, your 4th, 5th, and 6th Franchise Agreements are 4.5% of Net Sales. Your 1st, 2nd, and 3rd Franchise Agreements will also be reduced from 5% to 4.5% upon the opening of your 4th restaurant.

• Provided you are still a party to and not in default of your 1st through 6th Franchise Agreements, your 7th and any additional Franchise Agreements are 4% of Net Sales. Your 1st through 6th Franchise Agreements will also be reduced from 4.5% to 4% upon the opening of your 7th restaurant.

• Renewal term – the Continuing Fee for the final year of the Initial Term of the then-current form of Franchise Agreement for new franchisees.

4.  General Advertising Fund:  up to 2% of total Net Sales as dictated by Pita Pit; currently assessed at 1% of total Net Sales

• Due Date:  5th of each month.

5.  Transfer Fee:  $7,000, plus Pita Pit’s costs

• Due Date:  On application for transfer.

• The Transfer Fee is non-refundable, even if Pita Pit rejects the proposed transfer. Pita Pit may waive the collection of the Transfer Fee, or reduce the amount to be collected, in certain circumstances.

6.  Additional Operating Assistance:  if Pita Pit determines that you require additional assistance in the form of corporate training, you will have to pay training expenses for you and/or your managers and you may have to pay Pita Pit a fee of up to $5,000

• In the event additional assistance is required to ensure that the Pita Pit franchised system is being properly implemented, you may have to pay the cost of that additional assistance, including but not limited to travel, food, lodging, and time of Pita Pit’s people.

• Due Date:  Upon receipt of additional assistance.

7.  Audit:  cost of audit, including all costs of auditor and of Pita Pit’s employees

• Due Date:  After audit, if Net Sales is under-reported by more than 3%.

8.  Indemnification:  all liability, damages, and costs, including lawyer’s fees, incurred by reason of third-party claims or a breach of the Franchise Agreement. All lawyer’s fees if you breach the Franchise Agreement.

• Due Date:  When incurred by Pita Pit or other indemnified party.

9.  Renewal Fee:  $25,000

• Due Date:  On renewal.

• This fee is paid to Pita Pit upon renewal of the Franchise Agreement for an additional term of either ten years or until the expiry of the lease or sublease of the premises.

• Provided you have complied with all requirements set forth in the Franchise Agreement for its renewal, you may apply all but $2,500 of the $25,000 renewal fee toward the cost of upgrading the Restaurant to Pita Pit’s then-current image, standards, and specifications.

• If the cost of these upgrades is less than $22,500, you will not be obligated to pay the balance to Pita Pit. If the cost of these upgrades exceeds $22,500, you will be obligated to complete and pay for such upgrades.

10.  Taxes on Fees:  varies by State

• Due Date:  Payable when fee is due.

• You must pay any sales tax, use tax, gross receipts tax, or any other tax on your fee payments. Taxes may be payable at the federal, state, county, or municipal levels.

• If Pita Pit is required to collect any taxes on your fee payments, you will pay them to Pita Pit and it will forward payment to the appropriate taxing authority.

11.  Late Payments:  interest at 5% above highest domestic prime rate

• Due Date:  If you fail to pay Pita Pit any amounts.

12.  Loyalty/Gift Card Fee:  Initial Fee:  $188; Ongoing Monthly Fee:  $72

• Due Date:  Initial Fee:  one-time fee payable when due;  Ongoing Fee:  monthly.

13.  NSF (Non-Sufficient Funds) Fee:  $100

• Due Date:  If the bank does not honor your check.

14.  Lost System Manual:  $1,000

• Due Date:  If you lose your System Manual.

15.  Liquidated Damages:  an amount equal to your projected Continuing Fee for the lesser of the remaining term or 3 years

• Due Date:  If Pita Pit terminates the Franchise Agreement under Section 17(1).

• The projected Continuing Fee will be calculated using the average monthly Net Sales during the last 6 months that business was conducted at the Restaurant, or if business has been conducted at the Restaurant for less than 6 months, then the average over the actual operating period.

• Even though Pita Pit may waive, reduce, or defer fees for other franchisees in certain circumstances, it is under no obligation to do so for you.