Is there a geographic limitation on the restriction against owning or operating a competing restaurant during the Development Term for a Carls Jr. franchise?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
During the Development Term, there is no geographical limitation on this restriction.
Following the expiration, transfer or termination of this Agreement, this restriction shall apply within the Development Territory, within 2 miles of the border of the Development Territory and within a 2-mile radius of any then-existing Carl's Jr.
Restaurant.
This restriction shall not apply to Developer's existing restaurant or foodservice operations, if any, which are identified in Appendix B, nor shall it apply to other restaurants operated by Developer that are franchised by CJR or its affiliates.
CJR shall have the right, in its sole discretion, to reduce the scope of any covenant in this Section 12 effective immediately upon Developer's receipt of written notice, and Developer agrees that it shall comply forthwith with any covenant as so modified, which shall be fully enforceable notwithstanding the provisions of Section 20.
Source: Item 23 — RECEIPTS (FDD pages 76–364)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, during the Development Term, there is no geographical limitation on the restriction against owning or operating a competing restaurant. This means that as a Carls Jr. developer, you are restricted from engaging in competitive restaurant businesses anywhere during the period you are developing your franchise locations.
However, after the Development Term concludes, the restriction changes. Following the expiration, transfer, or termination of the Development Agreement, the restriction applies within the Development Territory, within 2 miles of the border of the Development Territory, and within a 2-mile radius of any then-existing Carls Jr. Restaurant. This post-term restriction is geographically limited to protect Carls Jr.'s market presence in and around its established locations.
The FDD also specifies that these restrictions do not apply to any existing restaurant or foodservice operations the developer may have, provided they are identified in Appendix B of the agreement. Additionally, the restriction does not extend to other restaurants operated by the developer that are franchised by Carls Jr. or its affiliates, allowing for expansion within the Carls Jr. system. Carls Jr. also retains the right to modify the scope of these covenants at its discretion with written notice to the developer.
It's important for prospective Carls Jr. developers to understand the extent of these restrictions, both during and after the Development Term, and how they might impact other business interests. Reviewing Appendix B to identify any existing operations and understanding the implications of the non-compete clauses is crucial before entering into a Development Agreement with Carls Jr.