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What are the consequences if a Chesters franchisee violates the non-competition restrictions (Item 7) given the lack of an exclusive territory (Item 12)?

Chesters Franchise · 2025 FDD

Answer from 2025 FDD Document

non-controlling interest as an owner in, or perform services as a director, officer, manager, employee, consultant, representative, or agent for, a Competitive Business at the Location or within a five (5)-mile radius from the Location.

For each violation of this restriction on the operation of a Competitive Business, you acknowledge that we will suffer substantial Brand Damages. "Brand Damages" means, among other things, lost market penetration and goodwill, loss of CHESTER'S Restaurant representation in the Location's market area, customer confusion, lost opportunity costs, and expenses that we will incur in developing or finding another operator to develop another CHESTER'S Restaurant in the Location's market area. We and you acknowledge that Brand Damages are difficult to estimate accurately, and proof of Brand Damages would be burdensome and costly, although such damages are real and meaningful to us. Therefore, for each violation of the restriction on the operation of a Competitive Business, you must pay us in a lump sum, on or before the date we specify, liquidated damages equal to Ten-Thousand Dollars ($10,000). Payment is due by credit card or ACH transfer. You agree that these liquidated damages represent the best estimate of our Brand Damages arising from each violation of the restriction on the operation of a Competitive Business. Your payment of the liquidated damages to us will not be considered a penalty but, rather, a reasonable estimate of fair compensation to us for the Brand Damages we will incur. You acknowledge that your payment of liquidate

What This Means (2025 FDD)

According to Chesters's 2025 Franchise Disclosure Document, a franchisee violating non-competition restrictions will face significant financial penalties. Chesters acknowledges that violations of non-competition agreements result in substantial "Brand Damages," including lost market penetration, goodwill, customer confusion, and lost opportunity costs.

Because these damages are difficult to estimate precisely, Chesters requires the franchisee to pay liquidated damages of $10,000 per violation. This payment is due in a lump sum via credit card or ACH transfer by a specified date. Chesters considers this amount to be a reasonable estimate of the brand damages incurred and not a penalty.

It's important to note that paying these liquidated damages only compensates Chesters for the brand damages caused by the violation. The franchisee remains responsible for fulfilling all other financial and contractual obligations outlined in the franchise agreement. Given that Chesters franchisees do not receive an exclusive territory, the non-competition restrictions are especially important for protecting Chesters's brand and market presence. Prospective franchisees should carefully review Item 7 regarding non-competition and Item 23 regarding receipts to fully understand the implications of violating these restrictions.

Disclaimer: This information is extracted from the 2025 Franchise Disclosure Document and is provided for research purposes only. It does not constitute legal or financial advice. Consult with a franchise attorney before making any investment decisions.