Under what circumstances does the violation of covenants clause in the Dog Haus franchise agreement become relevant?
Dog_Haus Franchise · 2025 FDDAnswer from 2025 FDD Document
- 15.4 Violation of Covenants.
If Franchisee or any Restricted Person shall commit any violation of Section 15.3 during the two (2) year period following (i) the expiration or termination of this Agreement; (ii) the occurrence of any Assignment during the Term; (iii) the cession of the Restricted Person's relationship with Franchisee; or (iv) a final court order (after all appeals have been taken) with respect to any of the foregoing events or with respect to enforcement of Section 15.3, in addition to all other remedies available to Franchisor, Franchisee or the Restricted Person shall pay Franchisor, throughout the twenty-four (24) month period, five percent (5%) of the revenue derived by Franchisee from the sale of all products and services and all other income of every kind and nature ("Post Termination Gross Sales") of the Competitive Business.
Source: Item 22 — CONTRACTS (FDD page 87)
What This Means (2025 FDD)
According to Dog Haus's 2025 Franchise Disclosure Document, the violation of covenants clause becomes relevant if a franchisee or any restricted person violates Section 15.3 of the franchise agreement. This section pertains to non-competition after the agreement expires or terminates. Specifically, this clause is triggered during the two-year period following the expiration or termination of the agreement, an assignment during the term, the end of a restricted person's relationship with the franchisee, or a final court order related to these events or the enforcement of Section 15.3.
If such a violation occurs, Dog Haus has the right to remedies in addition to the monetary penalties. The franchisee or restricted person is obligated to pay Dog Haus 5% of the revenue derived from the sale of all products and services, as well as all other income, from the competitive business throughout a 24-month period. This revenue is defined as "Post Termination Gross Sales".
This clause is designed to protect Dog Haus from unfair competition by former franchisees or related parties who might leverage the brand's confidential information and system knowledge gained during their franchise term. The financial penalty serves as a deterrent and compensation for potential losses incurred by Dog Haus due to the competitive activities of the former franchisee or restricted person. Prospective franchisees should carefully consider these post-termination obligations and their potential financial impact when evaluating the Dog Haus franchise opportunity.