After the Cinch I.T. franchise is terminated or expires, what is the radius restriction on competing business?
Cinch_I_T Franchise · 2024 FDDAnswer from 2024 FDD Document
| Provision | Section in franchise or other agreement | Summary |
|---|---|---|
| m. Conditions for franchisor approval of transfer | Section 28 | You must not be in default at time of transfer, you must sign a release, the proposed transferee must meet new franchisee qualifications, sign the then-current franchise agreement, pay training fee and complete training, and pay transfer fee. |
| n. Franchisor’s right of first | Section 31 | We have 30 days to match |
| refusal to acquire franchisee's | bona fide offers for your | |
| business | business. | |
| o. Franchisor’s option to purchase franchisee’s business | Section 35 | If your Franchise Agreement is terminated, we may, but are not obligated to, buy your inventory, supplies and equipment. |
| p. Death or disability of franchisee | Section 29 | May transfer franchise to spouse, heirs or relatives if they are qualified. Otherwise, your estate has 6 months to transfer to a qualified buyer. |
| q. Non-competition covenants during the term of the franchise | Section 27 | No involvement with competing business is allowed anywhere in the United States (subject to state law). |
| r. Non-competition covenants after the franchise is terminated or expires | Sections 27 and 35 | Two year and 25 mile radius restriction on competing business. Permanent restriction on using licensed rights (subject to state law). |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 48–56)
What This Means (2024 FDD)
According to Cinch I.T.'s 2024 Franchise Disclosure Document, if the franchise is terminated or expires, there are restrictions on operating a competing business. Specifically, a franchisee is restricted from involvement with a competing business within a 25-mile radius of their former Cinch I.T. location for a period of two years. Additionally, there is a permanent restriction on using Cinch I.T.'s licensed rights after the franchise agreement ends; however, these restrictions are subject to state law.
These non-compete terms are fairly standard in the franchise industry to protect the franchisor's brand and market share. The geographic restriction prevents a former franchisee from immediately leveraging the knowledge and customer relationships gained while operating the Cinch I.T. franchise to directly compete against the system. The time restriction gives the franchisor an opportunity to re-establish the territory with a new franchisee or absorb the existing customer base.
The permanent restriction on using licensed rights means a former franchisee cannot continue to use Cinch I.T.'s trademarks, service marks, or other proprietary information, which is also a common clause. Franchisees should be aware of these limitations and factor them into their long-term business plans, as they could impact their ability to operate a similar business in the same area after leaving the Cinch I.T. system.
Prospective franchisees should carefully review Section 27 and 35 of the Franchise Agreement, as referenced in Item 17, to fully understand the scope and enforceability of these non-competition covenants in their specific state. Because these restrictions are subject to state law, the specific terms may vary depending on where the franchise is located, and it is advisable to seek legal counsel to fully understand the implications.