Does the restriction on Carls operating or licensing other Carl's Jr. Restaurants in the Development Territory apply after the Development Agreement terminates or expires?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
Except as described in the preceding paragraph, we will not, during the term of the Development Agreement, operate or license others to operate Carl's Jr. Restaurants in the Development Territory, provided you are in compliance with the terms of the Development Agreement and other agreements with us or our affiliates and you are current on all obligations due us and our affiliates. This does not prohibit us or our affiliates from: (1) operating and licensing others to operate, during the term of the Development Agreement, Carl's Jr. Restaurants at any location outside of the Development Territory; (2) operating and licensing others to operate, after the Development Agreement terminates or expires, Carl's Jr. Restaurants at any location; and (3) operating and licensing others to operate at any location, during or after the Development Term, any type of restaurant other than a Carl's Jr. Restaurant.
Source: Item 12 — TERRITORY (FDD pages 54–56)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the restriction on Carls operating or licensing others to operate Carl's Jr. Restaurants in the Development Territory does not apply after the Development Agreement terminates or expires. Carls is permitted to operate and license others to operate Carl's Jr. Restaurants at any location after the Development Agreement ends.
This means that once the Development Agreement is over, Carls is no longer restricted from opening or franchising Carl's Jr. restaurants within the former Development Territory. A prospective franchisee should be aware that the territorial protections granted by the Development Agreement are only in effect during the term of that agreement. After the agreement's termination or expiration, Carls can freely operate or franchise new locations, potentially increasing competition in the area where the franchisee previously had some level of protection.
This is a fairly standard practice in franchising. Development Agreements typically have a defined term, and once that term is over, the franchisor regains full control over the territory. This allows Carls to adapt to changing market conditions and pursue new growth opportunities, even within areas previously designated for development by a specific franchisee. Franchisees should carefully consider the implications of this clause and factor it into their long-term business plans, understanding that the competitive landscape could change significantly after the Development Agreement concludes.