Can Beauty Bungalows prevent a transfer if the proposed transferee is a competitor?
Beauty_Bungalows Franchise · 2025 FDDAnswer from 2025 FDD Document
15.01 Covenants Not to Compete. During the term of this Agreement and for two (2) years after expiration, earlier termination, or approved Transfer of this Agreement for any reason (and during the term of this Agreement and for two (2) years from the date a person ceases to be an owner, shareholder, member, officer, or director of Franchisee), neither Franchisee nor any of Franchisee's owners, shareholders, members, partners, officers, or directors may participate directly or indirectly or serve in any capacity in any Competitive Business. This covenant not to compete applies: (i) during the term of the Agreement, within any state in which Franchisor or franchisees do business; and after termination of the Agreement within a twenty (20) mile radius from the boundary of Franchisee's Protected Territory, and within a twenty (20) mile radius from any franchised, Franchisor-owned, or affiliated company-owned Beauty Bungalows Studio; (ii) on the Internet; and (iii) on any other Multi-Area Marketing channels used by Franchisor.
This covenant not to compete is given in part in consideration for training and access to Franchisor's Trade Secrets, and which, if used in a Competitive Business without paying royalties and other payments, would give Franchisee an unfair advantage over Franchisor and Franchisor's franchisees. The unenforceability of all or part of this covenant not to compete in any jurisdiction will not affect the enforceability of this covenant not to compete in other jurisdictions, or the enforceability of the remainder of this Agreement.
Source: Item 22 — CONTRACTS (FDD pages 47–48)
What This Means (2025 FDD)
Based on the 2025 Beauty Bungalows Franchise Disclosure Document, the franchise agreement contains a covenant not to compete that could impact the transfer of a franchise to a competitor.
During the term of the franchise agreement and for two years after its expiration, termination, or approved transfer, the franchisee and their owners, shareholders, members, partners, officers, or directors are prohibited from participating in any capacity in a Competitive Business. This restriction applies within any state where Beauty Bungalows or its franchisees operate and within a 20-mile radius of the franchisee's Protected Territory or any franchised, franchisor-owned, or affiliated company-owned Beauty Bungalows Studio. The non-compete also extends to the Internet and any multi-area marketing channels used by the franchisor.
This covenant is in consideration for the training and access to Beauty Bungalows' trade secrets. If these trade secrets were used in a Competitive Business without paying royalties and other payments, it would give the franchisee an unfair advantage over Beauty Bungalows and its franchisees.
Therefore, while the FDD does not explicitly state that Beauty Bungalows can prevent a transfer to a competitor, the broad scope of the non-compete clause suggests that a transfer to a direct competitor or someone closely associated with one could be problematic and potentially blocked based on a violation of this clause. A prospective franchisee should seek clarification from the franchisor regarding specific scenarios and how the non-compete clause would be applied in the context of a potential transfer to a competitor.