Signs Carl’s Jr. May Be in a Tailspin

I realize the article title sounds like an over-sensationalized headline. I assure you it is not. I happen to have first-hand knowledge of multiple sites (more than 5, less than 10) for which Carl’s Jr. has inquired about closing the stores and terminating leases. These are all “A” sites in Southern California.

Carl’s Jr. wanted to shut down the stores. Immediately. They started by asking if a buyout was in the cards (landlord paying tenant). No. Not interested. The fact that they approached the property owner and asked that question gave the owner all the leverage needed to say “not a chance” to any sort of buyout. Carl’s Jr. told the owner everything he needed to know without realizing it. The message was clear: They are hurting.

After explaining the terms under which a lease termination would be workable, Carl’s Jr. took a couple weeks to discuss internally and reached back out in early January 2026. Their proposal: Full lease termination and store closing on or before January 26th (their 2026 fiscal year end).

What? No.

For those not overly familiar with lease / tenant negotiations and discussions of this type with large operators, this request is highly irregular, to say the least.

After the landlord responded to Carl’s Jr. saying that a termination by the end of month was not happening, the tenant responded a couple days later saying they were no longer interested in terminating the lease but would entertain termination discussions in the future should the landlord find a suitable replacement tenant. 

Uh huh. Yeah, right. That’s not happening. I’ll explain why not below.

Something is clearly amiss at CKE. You don’t need to be a Wall Street analyst specializing in the restaurant industry to know something is wrong. It appears Carl’s Jr. is getting killed in California.

To be honest, I’m not surprised that the cracks are starting to show. Economic headwinds have been building against California fast food operators for several years:

• Rising labor costs ($20 minimum wage)
• Rising food costs
• Rising insurance costs
• Rising rents and operating expenses
• Rising construction costs making remodeling and updating stores cost prohibitive

All of these costs need to be passed on to the consumer in the form of price. All of a sudden, fast food isn’t so affordable. 

Unless you have massive brand loyalty like the Big 3 (In N Out, Chick-fil-A, and Raising Cane’s), you can’t compete. The recent expansion of the Big 3 has also hurt legacy operators like Carl’s Jr. since a better hamburger option is now much closer and more convenient than it was only a handful of years ago.

There is a silver lining here though. Carl’s Jr. is a Southern California brand. They were born here and they grew up here. They have several amazing sites and several below-market leases. Brands looking to expand in Southern California will be licking their chops to get many of these sites.

Landlords will be fine. Carl’s Jr., not so much.

I wanted to touch on the landlord’s proposed lease termination structure and why letting Carl’s Jr. walk away clean at the end of January was a non-starter. You can skip this part if you aren’t interested in the strategies I think through and how I have advised clients in the past and the advice I still give freely to friends and past clients when dealing with matters such as this.

The landlord’s conditions in order to approve a lease termination and full release of liability for Carl’s Jr. were as follows:

1. Zero payment from Landlord to Carl’s Jr. for early termination regardless of where the existing lease sits in comparison to market. What this means is the landlord is not going to allow the tenant to capture any potential upside. 100% of any increased rent will accrue to the benefit of the landlord and there will be no up front payment for the ability to clear the pathway to capture said upside.

2. The termination agreement will provide for a unilateral landlord termination right with 60 days notice to Carl's Jr. The landlord has the right, but not the obligation to terminate the lease. Entitlements and governmental approvals for the new tenant can take 6 months or they can take 18 months or more. The landlord isn’t taking on that risk by betting on a completion date happening prior to a fixed termination date for Carl’s Jr. If the landlord is not able to secure a suitable replacement tenant on acceptable economic terms, Carl’s Jr. would remain obligated under the lease until the expiration of the existing term.

3. Carl’s Jr. will remain in occupancy until the termination notice is delivered (plus 60 days). The landlord does not want a vacant building, even if Carl’s Jr. remains liable under the lease. Vandalism is a near certainty if the building sits vacant for more than a week or two.

4. Carl’s Jr. would vacate the premises the day before possession is delivered to the new tenant. This is an ideal outcome. Something to shoot for but it’s not always possible to get the termination and delivery dates on consecutive days.

5. Carl’s Jr. pays rent until the date of actual termination. The landlord isn’t going to sit without rent and cover operating costs out of his own pocket while he is doing Carl’s Jr. a favor by letting them out of their lease early. That would be self-inflicted financial pain.

There are some other minor things that I don’t need to get into here - too deep in the weeds.

As I mentioned above, the tenant’s last communication stated they would consider a lease termination in the future. The exact quote was “If you do find a tenant to pay you more and want to re-open discussion regarding buying us out, we are open to it.”

Again, not interested. Do you know how unbelievably dumb it would be for the landlord to go do all the work to get a new tenant to the table before having the termination structure set in stone? The landlord would basically be giving the tenant all the leverage.

Without the termination agreement in place, the tenant would obviously stick out their hand for a large payment for the lease termination. They know the landlord would not be coming to them with a deal that is worse than what he already has with the Carl’s Jr. lease. The new deal would obviously be financially better for the landlord. So the landlord just went and did a bunch of work (not to mention having a bunch of other people do a bunch of work) for Carl’s Jr.’s financial benefit.

Again, that’s never happening.

The best strategy is to do nothing. There is zero downside to the landlord in waiting and ongoing operational pain for Carl’s Jr. They will be back.

Nobody has a crystal ball to predict where this will all shake out for Carl’s Jr. We just need to wait and see. That being said, from where I sit, things aren’t looking good.

Here is quick look at the map of all Carl’s Jr. locations in California in the updated DealGround interface. I’m sure quite a few of you will be making calls to Carl’s Jr. owners in the coming weeks. DealGround can help make those calls more targeted and more productive.

Happy hunting.