What specific restrictive covenants must a Chicken Guy franchisee include when selling or leasing the Franchised Location to ensure a competing restaurant is not operated there?
Chicken_Guy Franchise · 2025 FDDAnswer from 2025 FDD Document
- (5) Franchisee further covenants and agrees that, for a period of 1 year following the expiration or earlier termination of this Agreement, Franchisee will not, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with any person, firm, partnership, corporation, or other entity, sell, assign, lease or transfer the Franchised Location to any person, firm, partnership, corporation, or other entity which Franchisee knows, or has reason to know, intends to operate a restaurant business at the Franchised Location that would violate Sections 21.C.(2)(c) or 21.C.(3).
Franchisee, by the terms of any conveyance selling, assigning, leasing or transferring its interest in the Franchised Location, shall include these restrictive covenants as are necessary to ensure that a restaurant business that would violate Sections 21.C.(2)(c) or 21.C.(3) is not operated at the Franchised Location for this 1 year period, and Franchisee shall take all steps necessary to ensure that these restrictive covenants become a matter of public record.
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2025 FDD)
According to Chicken Guy's 2025 Franchise Disclosure Document, a franchisee must include specific restrictive covenants when selling, assigning, leasing, or transferring their interest in the Franchised Location. These covenants are designed to prevent the operation of a competing restaurant business at the location for a period of one year following the expiration or termination of the franchise agreement.
Specifically, the franchisee must ensure that the terms of any conveyance (selling, assigning, leasing, or transferring interest) include restrictive covenants necessary to prevent a restaurant business that would violate Sections 21.C.(2)(c) or 21.C.(3) from operating at the Franchised Location. The franchisee is obligated to take all necessary steps to ensure these restrictive covenants become a matter of public record. This requirement aims to protect Chicken Guy's interests by preventing a competitor from immediately taking over the location and leveraging the existing customer base or location advantages.
In practical terms, this means a franchisee needs to work closely with legal counsel to draft the appropriate language for sale or lease agreements. This language must clearly state that the new owner or tenant is prohibited from operating a restaurant that would compete with Chicken Guy, as defined by the original franchise agreement. Furthermore, the franchisee must ensure that these restrictions are properly recorded in public records, providing notice to any potential future owners or tenants of the property. Failure to comply with these requirements could expose the franchisee to legal action from Chicken Guy.