What are the implications of Checkersrallys not offering territorial exclusivity in Item 12 on the franchisee's obligations regarding site selection in Item 9?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
The Franchise Agreement grants you the right to own and operate a Restaurant at a specific location. If we and you have not agreed upon an approved location for the Franchised Restaurant before signing the Franchise Agreement, then you must locate a suitable site within the Designated Area. The Designated Area is appointed for the sole purpose of site selection and does not confer any territorial exclusivity or protection to you. You may not conduct the business of your Franchised Restaurant at any site other than the Premises, or relocate your Franchised Restaurant, without our prior written consent. In deciding whether to consent to a relocation, we may consider such factors as we, in our sole discretion, deem appropriate, including the general location and neighborhood, demographic information, traffic patterns, access, visibility, location of other restaurants and food establishments (including other Restaurants) and size, condition, configuration, appearance and other physical characteristics of the site. The Franchise Agreement does not provide you with any options, rights of first refusal or similar rights to acquire additional franchises.
You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands we control. However, you may receive a limited protected area, as follows: we will not operate (directly or through an affiliate), or grant to a third party the right to operate, any Checkers Restaurant or Rally's Restaurant located within the particular geographic area identified in Exhibit B attached to the Franchise Agreement (the "Protected Area"). The Protected Area, as defined by us, will be the lesser of: (i) a one (1) mile radius from the center of the Premises if your Franchised Restaurant is located in a suburban or rural area or (ii) an area immediately surrounding the Premises that encompasses a population of 20,000 residents if your Franchised Restaurant is located in an urban area. We do not provide a Protected Area to franchisees that operate Restaurants from Non-Traditional Sites.
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the lack of territorial exclusivity significantly impacts a franchisee's site selection and business operations. Item 12 states that the 'Designated Area is appointed for the sole purpose of site selection and does not confer any territorial exclusivity or protection to you.' This means that while Checkersrallys may provide a 'Designated Area' to help a franchisee find a suitable location, this area does not guarantee any exclusive rights to operate without competition. Franchisees may face competition from other franchisees, company-owned outlets, or other distribution channels controlled by Checkersrallys. This competitive environment increases the importance of selecting a strong site that can attract and retain customers.
However, Checkersrallys offers a limited protected area, which is the lesser of a one-mile radius in suburban or rural areas or an area encompassing 20,000 residents in urban areas. This protected area does not apply to franchisees operating from Non-Traditional Sites. Even with a protected area, Checkersrallys retains the right to modify its size and boundaries, potentially reducing it to an area encompassing a population of 20,000 residents. The continuation of exclusivity is not tied to sales volume or market penetration, but Checkersrallys can adjust the protected area's size. This means a franchisee needs to carefully evaluate the long-term potential of a site, considering possible future competition and adjustments to the protected area.
Given these conditions, franchisees must conduct thorough due diligence during site selection. Item 11 mentions that Checkersrallys will provide guidance and standard site selection criteria, including factors like demographic characteristics, traffic patterns, parking, neighborhood character, competition, and the physical and commercial characteristics of the site. Franchisees must locate and submit a site for approval within 180 days of signing the Franchise Agreement. The absence of territorial exclusivity underscores the importance of these criteria. Franchisees should prioritize locations with high visibility, easy access, and strong local demand to mitigate the risks associated with potential competition. They should also consider the potential impact of Checkersrallys's ability to solicit orders from customers using the Marks or other trademarks without providing compensation to the franchisee.