For how long after the transfer, expiration, or termination of the Del Taco franchise agreement is the franchisee restricted from engaging in a Competitive Business?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
- 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, a franchisee is restricted from engaging in a Competitive Business for a period of two years after certain events. Specifically, this restriction applies for a continuous, uninterrupted period of two years from the date of a permitted transfer, the expiration or termination of the Franchise Agreement (regardless of the cause), or a final order from an arbitrator or court regarding the enforcement of the non-compete clause.
During this two-year period, the franchisee is prohibited from directly or indirectly owning, maintaining, operating, engaging in, having any interest in, or providing assistance to a Competitive Business. A Competitive Business is defined as a restaurant or food service business that offers one or more Mexican or similar style menu items and operates in a quick service, fast food, or fast casual format. This restriction applies to businesses located within the Protected Area of the Del Taco restaurant or within two miles of any other Del Taco restaurant owned, operated, or under construction by Del Taco or its franchisees.
However, the non-compete period does not begin until the franchisee starts complying with the post-term covenants. Furthermore, the restriction does not apply to ownership of less than a 5% beneficial interest in the outstanding equity securities of any publicly held corporation. This means a franchisee can own a small stake in a publicly traded competitor without violating the agreement.
This non-compete clause is a standard provision in franchise agreements to protect the franchisor's brand and market share. Prospective Del Taco franchisees should carefully consider the implications of this restriction, especially if they have prior experience or future plans involving similar restaurant concepts. Understanding the scope and duration of the non-compete is crucial for making an informed decision about investing in a Del Taco franchise.