Considering a Taco Bell Franchise? Don’t Overlook These 20 Important Franchise Fees

If you are considering a Taco Bell franchise, don’t get blindsided by these 20 important franchise fees (from the initial franchise fee, to the royalty fee, to 18 other fees found in Items 5 and 6 of Taco Bell’s 2017 FDD).

1.  Initial Franchise Fee:  $25,000 to $45,000

• Taco Bell charges an initial franchise fee of $45,000 for a new Traditional Unit or Power Pumper. The initial franchise fee for a new In-Line or End-Cap is $25,000.

• The initial franchise fee is part of Taco Bell’s general revenues, and is not set aside for any particular purpose. The initial franchise fee is not refundable.

• In the past, Taco Bell occasionally waived or discounted the initial franchise fee paid by existing and new franchisees and it reserves the right to similarly do so in the future. During fiscal year 2016, the initial franchise fees paid ranged from $0 to $45,000 per Unit.

2.  Development Services Fee:  $25,000

3.  Real Estate Services Fee (Optional):  $25,000

4.  ADA Inspection Costs:  $1,800 (estimated)

• Taco Bell’s affiliate, Yum Restaurants Services Group, LLC (“YRSG”), offers real estate and construction development services (commonly referred to as TDS, or Taco Bell Development Services), with additional services being available at an hourly rate.

• Fees paid to YRSG are to be paid electronically via the MYTACOBELL website and are not refundable.

• The real estate services currently available through YRSG are the following:

• Site Selection:  YRSG (or its designee) will conduct a trade area analysis and source a site location within a specified trade area, negotiate a purchase contract or lease on your behalf (subject to review and approval by you and your attorney), prepare a site submittal package, and pursue YRSG’s corporate approval of the site.

• Feasibility:  YRSG (or its designee) will coordinate a construction, zoning, and on-site analysis of the property; recommend, order, and endeavor to obtain approval of a site sketch; recommend a building type and equipment package; and develop a project budget and schedule.

• The construction services currently available through YRSG are the following:

• Design:  YRSG (or its designee) will coordinate and review geo-technical and environmental soils testing, coordinate the completion and review of an ALTA survey, manage the architect and other consultants in preparing plans and specifications for the permitting and construction, and prepare and monitor a project schedule for completion of the design activities.

• Permitting:  YRSG (or its designee) will coordinate utility company plan submittals; submit all applicable permit applications; arrange for representation at municipal/public hearings; manage consultant activities such as traffic engineers, attorneys, and permit expediters; prepare and monitor the project schedule for completion of permit activities; and recommend action in relation to title, soil, and survey issues.

• Construction Management:  YRSG (or its designee) will recommend general contractors, prepare bid packages and conduct a pre-bid meeting, secure a construction contract (subject to review and approval by you and your attorney), communicate construction start date to applicable parties, keep you informed of construction progress, conduct periodic site inspections, review with the architect change orders and payment requests, coordinate with the general contractor delivery and equipment installation, review with the architect punch list items, and assist in close out activities.

• For the first Unit that you open, Taco Bell requires that you enter into a Development Services Agreement with YRSG for construction services to be provided by YRSG (or its designee) at a cost of $25,000. YRSG (or its designee) also provides real estate services, which are optional, at a cost of $25,000.

• You will be required to submit payment electronically via MYTACOBELL prior to your submission of a site for approval.

• You must also pay YRSG directly for all costs including, but not limited to, soil tests; survey costs; architect, civil engineer, attorney, and consultant costs; ADA inspection costs (which are estimated to cost $1,800); utility and permit fees and deposits, etc., in addition to YRSG’s (or its designee’s) expenses for postage and handling of documents, costs in connection with out-of-town travel, long distance calls and faxes, filing and administration fees, data processing, and photographic reproduction techniques.

• For the first Unit that you open, you are also required to use one of three Preferred National A&E Consultants to do the A&E work, the names of which will be provided to you once you are approved by Taco Bell as eligible to become a franchisee and the estimated cost for which is included in the Permits, Licenses, Security Deposits estimated costs listed in Item 7, Estimated Initial Investment.

• For your second and subsequent Units, you are not required to, but may, sign a Development Services Agreement with YRSG for construction and/or real estate services to be provided by YRSG (or its designee), at the costs provided above, or you may use an approved third party construction management firm.

5.  Grand Opening Expense:  $5,000 to be spent by you for advertising and promoting the opening of the Unit

• Due Date:  Within 6 months of opening, you are to spend $5,000.

• Taco Bell will reimburse you for approved expenditures upon receipt of paid invoices or other acceptable proofs of expenditure.

6.  Period Franchise Fee:  5.5% of the Unit’s Gross Sales

• Due Date:  On or before the 5th business day immediately following the accounting period in which the sales were made.

• “Gross Sales” means all payments received for sales and services of any nature excluding only sales taxes, employee meals, overrings, and refunds to customers.

7.  Period Marketing Fee:  4.25% of the Unit’s Gross Sales

• Due Date:  On or before the 5th business day immediately following the accounting period in which sales were made.

• Used to help defray Taco Bell’s costs of advertising.

8.  Late Charges:  the lesser of 18%  per annum or the highest rate permitted by New York law, plus the then-customary administrative charge

• Due Date:  As billed.

• Payable on any fees that are not paid when due.

9.  POS Annual Maintenance Fees:  $3,400

• Due Date:  As billed.

• Payable to Taco Bell. Additional maintenance fees payable to Taco Bell or 3rd party vendors may be due based on your repair history, local costs of computer maintenance services in your area, and technological advances.

10.  Training Materials:  as established by Taco Bell

• Due Date:  As billed.

• Taco Bell may develop materials for your use for in-store training.

• You are not required to purchase all of the training materials from Taco Bell.

11.  Cost of Audit of Your Books:  any and all costs incurred in connection with the inspection or audit, including reasonable accounting and legal fees

• Due Date:  As billed.

• Only due if Taco Bell inspects your books and finds you have understated Gross Sales by 2% or more.

12.  Transfer Fee:  a transfer of all or a portion of your interest in any Unit is subject to a transfer fee. Minimum fees are listed below and are subject to increase for costs incurred by Taco Bell, including but not limited to outside counsel fees, in connection with reviewing and effecting the transfer:

• 3rd party (non private equity “PE”) transfers:  1-5 units:  $5,000/transfer; 6 or more units:  $1,000/unit
• 3rd party transfers involving private equity:  greater of non-PE transfer fee or $100,000
• Entity restructures:  $1,000 total

• Due Date:  As billed.

• Transfer of your franchise is subject to Taco Bell’s prior written approval.

13.  Reimbursement of Insurance Expense:  actual cost of insurance

• Due Date:  As billed.

• If you fail to obtain insurance as required, Taco Bell may purchase it for you and bill you for the cost.

14.  Mid-Term Upgrade:  $114,243

• Due Date:  As billed.

• Payable to 3rd party vendors.

15.  Successor Fees:  for Traditional Units and Power Pumpers, the greater of $22,500 or 1/2 of then-current initial franchise fee for the applicable type of Unit. For In-Lines and End-Caps, the greater of $12,500 or 1/2 of applicable then-current initial franchise fee. Additionally, you will be required at your expense to complete an offset, scrape/rebuild, or major remodel of the Unit as a condition to obtaining successor agreement.

• Due Date:  Upon execution of the successor agreement.

• The Franchise Agreement does not provide you with renewal rights but Taco Bell has a Franchise Agreement Expiration Policy currently in effect, subject to modification or cancellation at any time.

16.  Extension Fee:  $562.50 for a 3-month extension

• Due Date:  Upon execution of Amendment to Franchise Agreement.

• Only applicable if Taco Bell agrees to temporarily extend term of the Franchise Agreement to allow you additional time to complete remodel or relocation of Unit.

17.  De-identification Costs:  actual cost of de-identifying Unit

• Due Date:  As billed.

• Payable to third party vendor, unless you fail to de-identify your Unit as required upon expiration or earlier termination of the Franchise Agreement, then Taco Bell may do it for you and bill you for the costs.

18.  Attorneys’ Fees:  prevailing party in any litigation is entitled to reasonable attorneys’ fees and costs paid by other party. Outside counsel fees may also be due in connection with review and approval of transfer of interest.

• Due Date:  You must pay Taco Bell for attorneys’ fees, as they are accrued.

• Applicable to litigation proceedings under the Franchise Agreement and in certain instances to transfer of interest reviews.

19.  Liquidated Damages:  if Franchise Agreement is terminated for certain specified reasons, you must pay liquidated damages equal to greater of 11% of Unit’s Gross Sales for last 12 months of operation or $100,000

• Due Date:  You must pay Taco Bell liquidated damages upon termination of the Franchise Agreement.

20.  Development Fee (Development Agreement):  if you purchase existing Units from Taco Bell, one of its affiliates, or another franchisee, and enter into a Development Agreement, and you fail to timely open required Units, you must pay Taco Bell the $45,000 initial franchise fee and periodic payments of $4,231 until actual opening date of each new Unit or expiration of Development Agreement

• Due Date:  $45,000 due within 5 days of scheduled opening date that is missed for new Unit. $4,231 due within 7 days after last day of applicable accounting period.