If you are considering a Cheba Hut franchise, don’t get blindsided by these 33 important franchise fees (from the initial franchise fee, to the royalty fee, to 31 other fees found in Items 5 and 6 of Cheba Hut’s 2019 FDD).
1. Initial Franchise Fee: $40,000 to $99,000
- Cheba Hut offers two different franchise packages depending on the number of Cheba Hut Businesses you wish to purchase:
- Single (1 Cheba Hut Business): $40,000
- Multi-3 (Up to 3 Cheba Hut Businesses): $99,000
- To open additional Cheba Hut Businesses under a Multi-3 Franchise, you will be required to sign the then-current Cheba Hut Business Franchise Agreement, but you will not be required to pay an Initial Franchise Fee (all other fees will apply).
2. Extension Fee: $5,000
- If you do not open your Restaurant within 300 days after signing the Franchise Agreement, then you will have the right to request, in writing, one or more 30-day extension periods to open the Restaurant, not to exceed 90 days from the required opening date in total.
- You must pay Cheba Hut an extension fee of $5,000 upon requesting each extension.
3. RECON Assistance Fee: $15,000
- In addition to the Initial Franchise Fee paid to Cheba Hut, you must pay a real estate and construction assistance fee (“RECON Assistance Fee”) of $15,000 for the first Cheba Hut Business that you purchase.
- You are required to use Cheba Hut’s approved supplier of real estate management services and design and construction management services prior to opening your Cheba Hut Business.
- Cheba Hut will use the RECON Assistance Fee to pay for the approved supplier’s real estate, site selection, lease negotiation, design and construction assistance and review, and other support.
- You will pay the RECON Assistance Fee at the same time as the Initial Franchise Fee.
- If you have purchased a Multi-3 Franchise, the RECON Assistance Fee for the second and each additional Cheba Hut Business opened under the Multi-Franchise Addendum will be $10,000 and payable at the time you sign the Franchise Agreement for each Cheba Hut Business.
4. Equipment and Décor: $420 to $1,000
- You must purchase a custom spice rack and certain décor pieces from Cheba Hut prior to opening. Cheba Hut estimates that your cost for these items will be between $420 and $1,000.
5. Opening Team: $1,000 to $3,000, if Cheba Hut determines that the Opening Team must include more than three representatives or that the Opening Team must be present at the Cheba Hut Business for more than 14 days
- After your management staff has successfully completed the initial training program, Cheba Hut will arrange for an “Opening Team” to assist you with opening your Cheba Hut Business. The Opening Team will assist you with implementing the Cheba Hut System at your Restaurant and training your staff and kitchen employees on the Cheba Hut brand standards. The Opening Team will assist you for a minimum of 14 days (which may not be consecutive).
- If Cheba Hut determines that the Opening Team must include more than three representatives or that the Opening Team must be present at the Cheba Hut Business for more than 14 days, you will reimburse Cheba Hut for the travel expenses and the salaries and benefits attributable to the extra representatives and/or extra days.
- Cheba Hut estimates these additional expenses to be between $1,000 and $3,000. Cheba Hut would invoice you for these expenses after the Opening Team completed their duties.
6. Royalty: 6% of Net Sales
- Due Date: Due on Wednesday of each week.
- The “Royalty” is based on “Net Sales” during the previous week. Your Royalty is an ongoing payment that allows you to use the Marks and the intellectual property of the System and pays for Cheba Hut’s ongoing support and assistance.
7. Brand Fund Contribution: 2% of your weekly Net Sales
- Due Date: Same as Royalty.
- This contribution will be used for a system-wide “Brand Fund” for Cheba Hut’s use in promoting and building the Cheba Hut brand.
8. Local Advertising Payment: the difference between the amount you spent on local advertising each month and your required local advertising expenditure (2% of your Net Sales)
- Due Date: Payable after receipt of invoice.
- If you fail to meet your required local advertising requirement on a rolling six-month basis, you must pay Cheba Hut the difference between the amount you spent and the required advertising expenditure, which will be contributed to the Brand Fund.
9. Local and Regional Advertising Cooperatives: established by cooperative members
- Due Date: Established by cooperative members.
- Cheba Hut currently does not have a cooperative but reserves the right to require one to be established in the future. If a local or regional advertising cooperative is established, contribution amounts will be established by the cooperative members, subject to Cheba Hut’s approval.
10. Unauthorized Advertising Fee: $500 per occurrence
- Due Date: Upon demand.
- This fee is payable to Cheba Hut or, if established, the Brand Fund, if you use unauthorized advertising in violation of the terms of the Franchise Agreement.
11. Insurance: reimbursement of all costs and premiums that Cheba Hut incurs, plus a 20% administrative surcharge
- Due Date: Upon demand.
- If you fail to maintain any required insurance coverage, Cheba Hut has the right to obtain the coverage on your behalf (which right shall be at Cheba Hut’s option and in addition to its other rights and remedies in the Franchise Agreement).
12. Additional Training or Assistance Fees: then-current fee (currently $250 per day for on-site training), plus expenses (estimated to range from $100 to $1,000 per person)
- Due Date: As incurred.
- Cheba Hut provides initial training at no charge for up to three people provided they attend the initial training at the same time.
- Cheba Hut may charge you for training additional persons, remedial training that Cheba Hut requires based on your operational deficiencies or defaults, manager training, refresher training courses, advanced training courses, and additional or special assistance or training you need or request.
13. Technology Fee: up to $500 per month
- Due Date: Monthly.
- This fee covers certain technologies used in the operation of your Cheba Hut Business.
- Cheba Hut reserves the right to upgrade, modify, and add new software. You will be responsible for any increase in fees that results from any upgrades, modifications, or additional software.
14. Online Ordering Service Fee: up to $99 per month
- Due Date: Upon receiving invoice.
- This is currently paid to Cheba Hut’s approved supplier for the online ordering for your Cheba Hut Business.
15. Conference Fee: the then-current registration fee (currently $420 per person)
- Due Date: Upon demand.
- Payable to Cheba Hut to help defray the cost of your attendance at any annual conference that Cheba Hut chooses to hold. This fee is due regardless of whether or not you attend Cheba Hut’s annual conference in any given year.
16. Supplier and Product Evaluation Fee: costs of inspection (estimated to be approximately $100 to $1,000)
- Due Date: As incurred.
- Payable if Cheba Hut inspects a new product, service, or proposed supplier nominated by you.
17. Replacement of Brand Standards Manual: $420
- Due Date: Upon demand.
- Payable if your copy of the Brand Standards Manual is lost, destroyed, or significantly damaged.
18. Payment Service Fee: up to 4% of total charge
- Due Date: As incurred.
- If payment is made to Cheba Hut or its affiliate by credit card for any fee required, Cheba Hut may charge a service charge of up to 4% of the total charge.
19. Late Payment Fee: the lesser of 18% per annum or the highest rate allowed by applicable law
- Due Date: As incurred.
- Payable if any payment due to Cheba Hut or its affiliates is not made by the due date.
- Interest accrues from the original due date until payment is received in full. If Cheba Hut does not specify a due date, interest shall accrue beginning ten days after it bills you.
20. Non-Sufficient Funds Fee: $100 per occurrence or the highest amount allowed by law and any late charge imposed
- Due Date: Upon demand.
- Payable if any check or electronic payment is not successful due to insufficient funds, stop payment, or any similar event.
21. Failure to Submit Required Report Fee: $100 per occurrence and per week
- Due Date: Your bank account will be debited for failure to submit any requested report within five days of request.
- Payable if you fail to submit the monthly reports when due.
- Fines collected are paid to the Brand Fund.
- You will continue to incur this fee until you submit the required report.
22. Audit Expenses: cost of audit and inspection, any understated amounts, and any related accounting, legal, travel, and lodging expenses (Cheba Hut estimates this cost to be between $1,000 and $10,000)
- Due Date: Ten days after invoicing.
- You will be required to pay this if an audit reveals that you understated Net Sales by more than 1.5% in any week, month, or year or you fail to submit required reports.
23. Management Fee: $250 per day, plus costs and expenses
- Due Date: As incurred.
- Payable if Cheba Hut manages the Cheba Hut Business because you fail to perform the responsibilities of a Managing Operator, or are in material breach of the Franchise Agreement, or upon a crisis management event.
24. Professional Fees and Expenses: will vary under circumstances
- Due Date: As incurred.
- You must reimburse Cheba Hut for any legal, accounting, or other professional fees (“Professional Fees”) that it incurs as a result of any breach or termination of your Franchise Agreement or as a result of your indemnity obligations.
- You must reimburse Cheba Hut if it is required to incur any expenses in enforcing its rights against you, including attorneys’ fees, under the Franchise Agreement.
25. Consulting Fees: the then-current fee charged by Cheba Hut for consulting services (currently $250 per day, plus all expenses incurred)
- Due Date: Upon demand.
- Payable only if you request Cheba Hut to provide a consultant to assist and/or advise you on management and operations issues for your Cheba Hut Business.
26. Indemnification: will vary under circumstances
- Due Date: As incurred.
- You must indemnify and reimburse Cheba Hut for any expenses or losses, including Professional Fees that Cheba Hut or its representatives incur related in any way to your Cheba Hut Business or Franchise.
27. Renewal Fee: 50% of the then-current Initial Franchise Fee
- Due Date: At the time you sign the new Franchise Agreement.
- Payable if you qualify to renew your Franchise Agreement and choose to enter into a successor Franchise Agreement.
28. Relocation Fee: $5,000 if you relocate within the Protected Area; $10,000 if Cheba Hut allows you to relocate outside of the Protected Area
- Due Date: Upon Cheba Hut’s approval of the new location.
- You must reimburse Cheba Hut for its reasonable expenses if it permits you to relocate your Cheba Hut Business.
29. Transfer Fee: 50% of the then-current Initial Franchise Fee
- Due Date: $1,000 non-refundable deposit at time of transfer application submittal and the remaining balance at time of the approved transfer.
- Payable in connection with the transfer of your Cheba Hut Business, a transfer of ownership of your legal entity, or the Franchise Agreement.
30. Mystery Shopper Fee: currently approximately $35 per occurrence and performed two times per month
- Due Date: As incurred.
- This is currently paid through your Brand Fund Account.
- At any time, Cheba Hut reserve the right to engage the services of one or more mystery shoppers or quality assurance inspection firms who will inspect your Cheba Hut Business for quality control purposes. These inspections may address a variety of issues, including customer service, food safety, sanitation, inventory rotation, etc.
- Currently these inspections are performed twice per month.
31. Liquidated Damages: will vary under the circumstances
- Due Date: Within 15 days after termination of the Franchise Agreement.
- Due only if Cheba Hut terminates the Franchise Agreement before the end of the term because of your material breach, or you terminate the Franchise Agreement without legal cause.
32. Business Interruption Insurance Fee: 6% of any proceeds received from your business interruption insurance
- Due Date: As incurred.
- Only incurred if your Restaurant is closed as a result of casualty relocation, or any other reason.
33. Broker Fees: Cheba Hut’s actual cost of the brokerage commissions, finder’s fees, or similar charges
- Due Date: As incurred.
- If you transfer your Cheba Hut Business to a third party or purchaser, you must reimburse all of Cheba Hut’s actual costs for commissions, finder’s fees, and similar charges.
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