IHOP Traditional Franchise

Financing Details

IHOP offers direct financing for a portion of the Initial Franchise Fee, but only under the Purchase Program. The required down payment is typically 20%, but can be as low as 5%, and is due when the Franchise Agreement is signed. Any remaining balance is paid in weekly installments with an interest rate between 1% and 12% per annum, capped at the maximum legal rate. The interest rate is negotiable and depends on factors like the current prime rate, the franchisee's financial condition, credit history, restaurant operating history, sales volume, lease term, and the franchise fee amount. The repayment period for the financed portion of the Initial Franchise Fee is typically one to eight years for fees up to $500,000, and one to 12 years for fees over $500,000. In exceptional cases, IHOP may finance the entire Initial Franchise Fee. Additionally, IHOP may finance a portion of the down payment itself through a separate promissory note, usually payable in one to two installments within six months to one year, also bearing interest between 1% and 12%. For new franchise agreements extending existing rights, IHOP may also finance a portion of the Initial Franchise Fee, typically with a 20% down payment and weekly installments over one to two years at 8% to 12% interest. There are no prepayment penalties. If a franchisee defaults on a promissory note, IHOP can declare the entire unpaid balance and accrued interest immediately due and payable, and this constitutes a default under the franchise documents. If IHOP pays a franchisee's obligation (like property taxes), the franchisee has 30 days to repay IHOP, after which 12% annual interest applies. IHOP does not charge a fee for arranging financing.

Litigation Summary

IHOP Franchisor LLC has no pending litigation that requires disclosure. However, IHOP has had 17 concluded litigation cases. One notable case from June 2019 involved a former IHOP franchisee suing Dine Brands and its affiliates, alleging failure to negotiate a lease extension, which led to the franchisee ceasing operations. The claims included breach of contract and unfair business practices. The dispute went to arbitration, and in March 2021, the arbitrators ruled in favor of Dine Brands, awarding them over $1.2 million in costs and fees. Other historical cases have involved terminations for operational failures, antitrust claims, trademark infringement, discrimination, underreporting sales, and class action lawsuits. All these disclosed cases have been concluded.

Renewal Conditions

To renew their franchise agreement, IHOP franchisees must adhere to several conditions. They need to provide written notice between 18 to 24 months before their current term expires. Franchisees must be in full compliance with all obligations under their current franchise agreement and any other agreements with IHOP or its affiliates, and must not have received four or more default notices in any 24-month period during the initial term, regardless of whether the defaults were cured. They are required to pay any deferred Initial Franchise Fees or a Renewal Fee. Franchisees must also demonstrate the financial ability to refurbish and remodel their restaurant according to IHOP's then-current standards, completing all such work before the renewal term begins. They must secure the right to occupy the franchised location for the new term, and, if applicable, sign a new or amended sublease. Finally, franchisees must meet IHOP's then-current standards for issuing new franchises to existing franchisees and sign the then-current franchise agreement, which may include different terms and conditions, such as a different Franchised Area and higher advertising fees.

Staffing Notes

IHOP requires each restaurant to have two IHOP Certified Restaurant Leaders. These leaders, one of whom can be the franchisee if actively involved in daily operations, must complete a comprehensive training program covering team leadership, guest safety, daily manager workflow, scheduling, productivity management, restaurant hospitality, revenue accounting procedures, team member training, equipment management, and marketing programs. This training also includes team member skills for cook, host, server, combo, and cashier positions. All Certified Leaders must successfully complete an IHOP-approved food safety certification. If the franchisee does not actively participate, they must employ two Certified Leaders. The training team provides initial training assistance to newly hired team members for approximately three weeks around the restaurant's opening. IHOP also uses an e-Learning system, IHOP Academy, which requires each franchised restaurant to maintain two Wi-Fi enabled tablet or laptop devices in good working order.