Following termination of the Development Agreement, must the Chicken Guy developer continue to abide by the covenants in Section 12?
Chicken_Guy Franchise · 2025 FDDAnswer from 2025 FDD Document
In addition to any other remedies or damages permitted under this Agreement, if Developer breaches Section 12.C.(2)(c) ("Covenants Against Competition") during the 1-year period following the expiration or earlier termination of this Agreement, for each restaurant business that violates those Sections, Developer shall pay to Chicken Guy: (1) a fee equal to Chicken Guy's then-current Initial Franchise Fee for franchised Chicken Guy!
Restaurants; and (2) 8% of the gross sales of that restaurant business until the expiration of the 1-year period following the expiration or earlier termination of this Agreement.
Developer acknowledges that a precise calculation of the full extent of Chicken Guy's damages under these circumstances is difficult to determine and the method of calculation of such damages as set forth in this Section 12.D. is reasonable.
Developer's payment to Chicken Guy under this Section shall be in addition to any attorney's fees and other costs and expenses to which Chicken Guy is entitled pursuant to Section 22.E.
Developer acknowledges that breach of the Covenants Against Competition by Developer shall cause irreparable harm to Chicken Guy in addition to monetary damages and nothing in this Section 12.D. shall preclude Chicken Guy from obtaining appropriate injunctive relief to enforce the Covenants Against Competition and specific performance to enforce this Section 12.D.
The restrictions contained in this Section 12 shall apply to Developer and all guarantors of Developer's obligations. With respect to guarantors, these restrictions shall apply for a 1 year period after any guarantor ceases to be the Development Principal or an officer, stockholder, director, member of the Continuity Group or a 10% Owner.
Source: Item 23 — RECEIPTS (FDD pages 50–286)
What This Means (2025 FDD)
According to the 2025 Chicken Guy Franchise Disclosure Document, the restrictions outlined in Section 12 of the Development Agreement continue to apply to the developer even after the agreement's termination. Specifically, the covenants against competition detailed in Section 12.C.(2)(c) remain in effect for a one-year period following the expiration or termination of the agreement. This means that for one year after the Development Agreement ends, the developer is restricted from engaging in competitive restaurant businesses.
If the developer violates these covenants against competition, Chicken Guy is entitled to specific remedies. For each restaurant business that violates the covenants, the developer must pay Chicken Guy a fee equivalent to the then-current initial franchise fee for a Chicken Guy restaurant. Additionally, the developer must pay 8% of the gross sales of the violating restaurant business until the end of the one-year period following the termination or expiration of the Development Agreement. These payments are in addition to any attorney's fees and other costs Chicken Guy incurs to enforce the agreement.
Chicken Guy also has the right to seek injunctive relief to enforce these covenants. This means that Chicken Guy can pursue court orders to stop the developer from violating the non-compete obligations. The FDD states that any breach of these covenants would cause irreparable harm to Chicken Guy, justifying injunctive relief in addition to monetary damages. The restrictions in Section 12 apply to the developer and any guarantors of the developer's obligations. For guarantors, these restrictions are in place for one year after they cease to be the Development Principal, an officer, stockholder, director, member of the Continuity Group, or a 10% Owner.