Under what condition is a Carls franchisee allowed to own or operate a competing restaurant during the term of the agreement?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
(2) Accordingly, Franchisee covenants and agrees that, except with CJR's prior written consent, during the term of this Agreement, and for a continuous period of 2 years following its expiration, transfer, or termination, Franchisee shall not, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with, any person, firm, partnership, corporation, or other entity:
(b) Own, maintain, operate, engage in, grant a franchise to, advise, help, make loans to, lease property to, sell the property underlying the Franchised Location and related assets to, or have any interest in, either directly or indirectly, any restaurant business: (i) whose sales of Designated Entrée Items (as defined below) during any daypart are reasonably likely to account collectively for 20% or more of the restaurant's sales of all entrée items during that daypart; (ii) that features or promotes any Designated Entrée Item in its advertising; or (iii) that operates in a quick-service format (with or without table service).
For purposes of the previous sentence, the term "Designated Entrée Items" means any hamburger sandwich, chicken sandwich, breakfast sandwich and any other entrée item of a type designated by CJR as part of the System at any time during the term of this Agreement.
During the term of this Agreement, there is no geographical limitation on this restriction.
Following the expiration, transfer or termination of this Agreement, this restriction shall apply to any restaurant business located within a 2 mile radius of the Franchised Location and any restaurant business within a 2 mile radius of any then-existing Carl's Jr.
Restaurant.
This restriction shall not apply to Franchisee's existing restaurant or foodservice operations, if any, which are identified in Appendix A, nor shall it apply to other restaurants operated by Franchisee that are franchised by CJR or its affiliates.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to the 2024 Carls Franchise Disclosure Document, a franchisee is generally restricted from owning or operating a competing restaurant during the term of the agreement and for two years after, without prior written consent from Carls. This restriction applies without geographical limitation during the term of the agreement. After the agreement expires, is transferred, or is terminated, the restriction applies to any restaurant business located within a 2-mile radius of the franchised location and any Carls restaurant.
However, this restriction does not apply to a franchisee's existing restaurant or foodservice operations, if any, which are identified in Appendix A of the franchise agreement. It also does not apply to other restaurants operated by the franchisee that are franchised by Carls or its affiliates.
Specifically, the restriction applies to any restaurant business (i) whose sales of designated entree items (hamburger sandwich, chicken sandwich, breakfast sandwich and any other entree item of a type designated by Carls) during any daypart are reasonably likely to account collectively for 20% or more of the restaurant's sales of all entree items during that daypart; (ii) that features or promotes any designated entree item in its advertising; or (iii) that operates in a quick-service format (with or without table service).