Does the Del Taco franchise agreement allow franchisees to have undisclosed interests in competitive businesses?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
- 10.5.2 Except as otherwise approved in writing by Del Taco directly or indirectly own, maintain, operate, engage in, have any interest in or provide any assistance to (whether as owner, stockholder, partner, officer, director, employee, consultant, franchisor, lessor, or otherwise) any "Competitive Business," which shall mean a restaurant or food service business that offers one or more Mexican or similar style menu items, and is operated in a quick service, fast food, or fast casual format.
- 10.6 Post-Term Covenants.
Except as otherwise approved in writing by Del Taco, Franchisee shall not, for a continuous uninterrupted period of two (2) years from the date of: (a) a transfer permitted under Section 12.3 above; (b) expiration or termination of this Agreement (regardless of the cause for termination); or (c) a final order of a duly authorized arbitrator, panel of arbitrators, or a court of competent jurisdiction (after all appeals have been taken) with respect to any of the foregoing or with respect to the enforcement of this Section 10.6; either directly or indirectly own, maintain, operate, engage in, have any interest in, or provide any assistance to (whether as owner, stockholder, partner, officer, director, employee, consultant, franchisor, lessor or otherwise) any Competitive Business which is, or is intended to be, located: (a) within the Protected Area of the Restaurant or (b) within two (2) miles of any other Del Taco restaurant owned and/or operated or then under construction by Del Taco or any other franchisee or licensee of Del Taco as of the time that the obligations under this Section 10.6 commence.
If Franchisee does not comply with the post-term covenants as specified in this Section 10.6, the post-term non-compete period shall not begin to run until Franchisee begins to comply.
- 10.7 Publicly-Held Corporations.
Section 10.6 above shall not apply to ownership by Franchisee of less than a five percent (5%) beneficial interest in the outstanding equity securities of any publicly held corporation.
Source: Item 22 — CONTRACTS (FDD pages 58–59)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, during the term of the agreement, franchisees are restricted from having interests in competitive businesses without written approval from Del Taco. A "Competitive Business" is defined as any restaurant or food service that offers Mexican or similar style menu items and operates in a quick service, fast food, or fast casual format. This restriction applies whether the franchisee's involvement is direct or indirect, and includes various roles such as owner, stockholder, partner, officer, director, employee, consultant, franchisor, or lessor.
Specifically, the Del Taco franchise agreement states that franchisees cannot own, maintain, operate, engage in, have any interest in, or provide assistance to any Competitive Business unless Del Taco provides written approval. This means that a franchisee must disclose any potential conflicts of interest and obtain explicit permission from Del Taco to be involved with another similar business. This requirement ensures that franchisees remain focused on the success of their Del Taco franchise and do not divert resources or confidential information to competing ventures.
After the termination or transfer of the franchise agreement, a similar restriction applies for a period of two years. During this post-term period, franchisees are prohibited from engaging in any Competitive Business within the Protected Area of their former Del Taco restaurant or within two miles of any other Del Taco restaurant. However, this post-term restriction does not apply if the franchisee owns less than a five percent beneficial interest in the outstanding equity securities of any publicly held corporation. This exception allows franchisees to invest in publicly traded companies that may have competing restaurant brands, provided their ownership stake is minimal.
Overall, these covenants aim to protect Del Taco's market position and confidential information by preventing franchisees from using their knowledge and resources to benefit competing businesses, both during and for a limited time after the franchise agreement. Prospective franchisees should carefully consider these restrictions and ensure they are willing to comply with these terms before investing in a Del Taco franchise.