Is the Trade Area Satisfaction Exception applicable to the restrictions on Bonchon and its affiliates from operating or granting franchises for similar businesses within the Development Territory?
Bonchon Franchise · 2025 FDDAnswer from 2025 FDD Document
For so long as the Area Development Agreement is in effect, neither we nor any of our affiliates (meaning any individual or entity we control, which controls us or which is under common control with us, together our "affiliates") will, within the Development Territory, operate or grant a franchise for a restaurant business operated under the Proprietary Marks of the type franchised to you, or a similar or competitive business, except for the rights we reserve that are described below (including, without limitation, our right to operate a Bonchon Restaurant or offer and sell Bonchon products and services at a Nontraditional Location located within your Development Territory). These restrictions, which are subject to the Trade Area Satisfaction Exception (as defined below), will terminate immediately upon the expiration or termination of the Area Development Agreement for any reason. If your Development Territory is comprised of various geographic trade areas within a particular or one or more cities, states or regions and we designate a specific number of Businesses that you may develop or operate within each geographic trade area, your exclusive right to develop and operate Bonchon Businesses within a certain geographic trade area will terminate once you have developed the specified number of Bonchon Businesses in the subject geographic trade area. For the avoidance of doubt, if your Development Territory includes City A, City B and City C and we grant you the right to develop two Bonchon Businesses in each city, then your right to develop Bonchon Businesses in City A will cease once you developed and commenced operations of two Bonchon Businesses. Accordingly, we will have the right to develop and operate or grant a third party the right to develop and operate additional Bonchon Businesses in City A, even if you have not fully satisfied your development obligations under your Area Development Agreement with respect to the other geographic trade areas within the Development Territory (e.g. in City B and City C) (the "Trade Area Satisfaction Exception"); provided, however, that neither we nor any third party will have the right to develop and operate a Bonchon Business within the Protected Territory granted under the Franchise
Source: Item 12 — TERRITORY (FDD pages 60–65)
What This Means (2025 FDD)
According to Bonchon's 2025 Franchise Disclosure Document, the Trade Area Satisfaction Exception does apply to the restrictions on Bonchon and its affiliates regarding operating or franchising similar businesses within the Development Territory. Bonchon and its affiliates are restricted from operating or franchising a restaurant business under their Proprietary Marks, or a similar or competitive business, within the Development Territory while the Area Development Agreement is in effect. However, this restriction is subject to the Trade Area Satisfaction Exception.
The Trade Area Satisfaction Exception comes into play if the Development Territory is made up of various geographic trade areas within cities, states, or regions, and Bonchon designates a specific number of businesses that the franchisee can develop in each area. Once the franchisee develops the specified number of Bonchon businesses in a particular geographic trade area, their exclusive right to develop and operate Bonchon businesses in that specific area terminates.
For example, if the Development Territory includes City A, City B, and City C, and the franchisee has the right to develop two Bonchon businesses in each city, Bonchon can develop or grant a third party the right to develop additional Bonchon Businesses in City A once the franchisee has developed two Bonchon Businesses there. This is true even if the franchisee has not yet fulfilled their development obligations in City B and City C. However, neither Bonchon nor any third party can develop a Bonchon business within the Protected Territory granted under the Franchise Agreement for each Bonchon Restaurant developed in City A, except as otherwise permitted in the Franchise Agreement.