After the Buona agreement expires, what is the geographic restriction preventing a Developer from owning a Competitive Business?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
9. POST-TERMINATION COVENANTS
- 9.1 Unless otherwise specified, the term "Developer" as used in this Section 9 shall include each and every Owner of Developer.
- 9.2 Developer specifically acknowledges that, pursuant to this Agreement, Developer will have access to the Confidential Information. Accordingly, Developer covenants that Developer and its Owners shall not, for a period of two (2) years after the expiration or termination of this Agreement, regardless of the cause of termination, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with any person, persons, or entity:
- (a) own, maintain, operate, engage in, consult with or have any interest in (as disclosed or beneficial owner) any Competitive Business or any entity which is franchises, licenses or develops Competitive Businesses within the Development Area, or within a ten (10) mile radius of any existing Franchised Restaurant, except under a validly existing Franchise Agreement with Franchisor. You acknowledge and agree that, after the date of this Agreement, other Franchised Restaurants may open, thereby expanding the geographical area in which you will not be able to compete with us. For purposes of this Section 9, a "Competitive Business" is defined as any retail establishment that derives more than ten percent (10%) of its gross sales from Italian beef and Italian sausage products and other Italian specialties or any retail establishment that derives more than ten percent (10%) of its gross sales from ice cream;
- (b) directly or indirectly divert or attempt to divert any former business or customer of a Franchised Restaurant to any competitive business; and
- (c) employ or seek to employ any person employed by us or our affiliate or by any other Franchised Restaurant franchisee, or otherwise directly or indirectly induce or seek to induce such person to leave his or her employment, subject to applicable law;
The ownership of two percent (2%) or less of a publicly traded Franchisor will not be deemed to be prohibited by this paragraph.
Source: Item 22 — CONTRACTS (FDD page 78)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, a Developer is restricted from owning, maintaining, operating, or having any interest in a Competitive Business for two years after the expiration or termination of the Development Agreement. This restriction applies within the Development Area or within a ten-mile radius of any existing Buona Restaurant. The term 'Developer' includes each owner of the Developer. A Competitive Business is defined as any retail establishment that derives more than 10% of its gross sales from Italian beef and Italian sausage products and other Italian specialties.
This post-termination covenant aims to protect Buona's confidential information and market share. By preventing a former Developer from immediately opening a competing business nearby, Buona seeks to maintain its competitive advantage and customer loyalty. The agreement acknowledges that as more Buona Restaurants open, the geographical area in which the Developer cannot compete may expand.
For a prospective Buona Developer, this means that after the Development Agreement ends, they cannot operate a similar Italian specialty restaurant within their former Development Area or within 10 miles of any Buona location for two years. This restriction could impact their future business plans and should be carefully considered. It is important to note that owning 2% or less of a publicly traded franchisor is not prohibited under this agreement.
It is also important to understand the definition of a 'Competitive Business' as it is tied to a specific percentage of gross sales from particular products. This definition provides clarity but also leaves room for interpretation if a business model shifts over time. A prospective franchisee should seek legal counsel to fully understand the implications of this non-compete clause and how it might affect their long-term business aspirations.