Can Checkersrallys withhold consent for a franchisee to have an ownership interest in a Competitive Business for any reason?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
- 7.02 In-Term Covenants.You acknowledge that we have granted you the franchise in consideration of, and reliance upon, your agreement to deal exclusively with us. You therefore agree that, during the Term and any successor franchise term, neither you, any of your Owners, nor any of your or your Owners' Immediate Family will (without our prior consent, which consent we may condition or withhold for any or no reason):
- (a) have any direct or indirect controlling or non-controlling ownership interest as an owner – whether of record, beneficially, or otherwise – in a Competitive Business, wherever located or operating (except that equity ownership of less than five percent (5%) of a Competitive Business whose stock or other forms of ownership interest are publicly traded on a recognized United States stock exchange will not be deemed to violate this subparagraph);
- (b) perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business, wherever located or operating;
- (c) divert or attempt to divert any actual or potential business or customer of any Restaurant to a Competitive Business; or
- (d) engage in any other activity which, in our sole opinion, might be injurious or prejudicial to the goodwill associated with the Marks or the System.
Source: Item 22 — CONTRACTS (FDD pages 91–92)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, Checkersrallys can withhold consent for a franchisee or their owners to have any direct or indirect ownership interest in a Competitive Business. Checkersrallys may condition or withhold this consent for any reason or no reason. A Competitive Business is defined as any business that operates as a restaurant or food-service provider deriving more than 20% of its revenue from selling hamburgers, cheeseburgers, and hot dogs in a fast-food format, or that grants franchises or licenses to others to operate such a business.
This restriction applies during the term of the franchise agreement and any successor term. However, an exception exists for owning less than 5% of a Competitive Business if its stock is publicly traded on a recognized U.S. stock exchange, provided that neither the franchisee nor the individual controls the company.
This clause ensures that franchisees and their owners remain fully committed to the Checkersrallys system and do not divert resources or knowledge to competing businesses. Prospective franchisees should carefully consider this restriction, especially if they have existing business interests or plan to invest in other restaurant ventures. It is important to fully understand the definition of a 'Competitive Business' and the implications of this clause before entering into a franchise agreement with Checkersrallys.