What are the potential financial consequences for a Chesters franchisee who violates the non-competition agreement (Item 7) in a non-exclusive territory (Item 12)?
Chesters Franchise · 2025 FDDAnswer 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 operating a Competitive Business in violation of the franchise agreement will face financial consequences. Chesters franchisees do not receive an exclusive territory.
For each violation, the franchisee must pay Chesters liquidated damages of $10,000. This payment is due in a lump sum on or before the date Chesters specifies, payable by credit card or ACH transfer.
Chesters states that this liquidated damage amount represents the best estimate of the brand damages they will suffer. These damages include lost market penetration and goodwill, loss of Chesters Restaurant representation in the location's market area, customer confusion, lost opportunity costs, and expenses incurred in finding another operator.
The FDD clarifies that the $10,000 payment is not considered a penalty but rather a reasonable estimate of fair compensation for brand damages. This payment covers only brand damages and is in addition to any other amounts the franchisee owes Chesters under the agreement, as well as compliance with all other contractual obligations.