Does the post-term restriction for Chocolate Fish Coffee apply after a transfer of the agreement?
Chocolate_Fish_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
- (b) Restriction Post Term. For two years after this Agreement expires or is terminated for any reason (or, if applicable, for two years after a Transfer), no Restricted Party shall directly or indirectly have any ownership interest in, lend money or provide financial assistance to, provide any services to, or be employed by, any Competitor within five miles of Franchisee's Territory or the territory of any other Chocolate Fish Coffee business operating on the date of termination or transfer, as applicable. If this Agreement is terminated before the Territory is determined, then the area of non-competition will the Development Area and the territory of any other Chocolate Fish Coffee business operating on the date of termination.
- (c) Interpretation. The parties agree that each of the foregoing covenants is independent of any other covenant or provision of this Agreement. If all or any portion of the covenants in this Section is held to be unenforceable or unreasonable by any arbitrator or court, then the parties intend that the arbitrator or court modify such restriction to the extent reasonably necessary to protect the legitimate business interests of Chocolate Fish Franchising. Franchisee agrees that the existence of any claim it may have against Chocolate Fish Franchising shall not constitute a defense to the enforcement by Chocolate Fish Franchising of the covenants of this Section. If a Restricted Party fails to comply with the obligations under this Section during the restrictive period, then the restrictive period will be extended an additional day for each day of noncompliance.
Source: Item 23 — RECEIPTS (FDD pages 41–119)
What This Means (2024 FDD)
According to the 2024 Chocolate Fish Coffee Franchise Disclosure Document, the post-term non-compete restrictions apply after a transfer of the franchise agreement. Specifically, for two years after the agreement expires or is terminated, or for two years after a transfer, the franchisee, any owner, or any spouse of an owner cannot have any interest in, lend money to, provide services to, or be employed by a competitor. This restriction applies within five miles of the franchisee's territory or the territory of any other Chocolate Fish Coffee business operating on the date of termination or transfer.
This means that if a Chocolate Fish Coffee franchisee sells their franchise, the non-compete clock resets. The new owner is bound by the non-compete for two years from the date of the transfer. This provision protects Chocolate Fish Coffee's market share and proprietary information by preventing former franchisees or their owners from immediately opening a competing business nearby.
It is important to note that if the territory is not determined before termination, the non-compete area will be the Development Area and the territory of any other Chocolate Fish Coffee business operating on the date of termination. The franchisee should also be aware that if they fail to comply with the non-compete obligations, the restrictive period will be extended by one day for each day of noncompliance. This clause is designed to strongly discourage any breach of the non-compete agreement.