What are the restrictions on an Owner of Developer after ceasing to be an Owner of Ella Cafe?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
the foregoing events or with respect to enforcement of this Section 10.2., and continuing for an uninterrupted period of two years thereafter, Developer will not, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with any person, persons, or legal entity, own, maintain, advise, operate, engage in, be employed by, make loans to, invest in, provide any assistance to, or have any interest in (as an owner or otherwise) or relationship or association with any casual, fast-casual, or quick-service coffee house, retail Coffee House, coffee/food truck, kiosk, cart, or store inside store of any type, that offers coffee and/or assorted café items as a primary menu item or that derives more than 25% of its revenue from the sale of coffee and/or assorted café items, other than a Ella Coffee Company, LLC Coffee House operated pursuant to a then-currently effective Franchise Agreement with Franchisor, that: (i) is, or is intended to be, located at the location of the former Location; (ii) is within a five-mile radius of the former Location; or (iii) is within a five-mile radius of any other Coffee House operating under the System and Marks, that is in existence or under development at any location within the United States, its territories, or commonwealths, or any other country, province, state, or geographic area in which Franchisor or its Affiliates have used, sought registration of, or registered the Marks or similar marks, or operate or license others to operate a business under the Marks or similar marks, at the time of such expiration, termination, or transfer. If any Owner ceases to be an Owner of Developer for any reason during the Term of this Agreement, the foregoing covenant will apply to the departing Owner for a two-year period beginning on the date such person ceases to meet the definition of an Owner. The time periods relating to the obligations described in this Section 10.2. will be tolled during any period of noncompliance.
Source: Item 23 — RECEIPTS (FDD pages 50–181)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, if an owner ceases to be an owner of the developer, certain restrictions apply for a period of two years. Specifically, the departing owner is restricted from engaging in activities related to competitive coffee businesses. This includes owning, maintaining, advising, operating, being employed by, making loans to, investing in, providing assistance to, or having any interest in any casual, fast-casual, or quick-service coffee house, retail Coffee House, coffee/food truck, kiosk, cart, or store inside store of any type, that offers coffee and/or assorted café items as a primary menu item or that derives more than 25% of its revenue from the sale of coffee and/or assorted café items.
The restrictions apply to businesses located at the former Ella Cafe location, within a five-mile radius of the former location, or within a five-mile radius of any other Ella Cafe operating under the Ella Cafe system and marks. These geographic restrictions extend to any location within the United States, its territories, or commonwealths, or any other country, province, state, or geographic area in which Ella Cafe or its affiliates have used, sought registration of, or registered the marks.
The two-year restriction period begins on the date the person ceases to be an owner. It's important to note that the time periods relating to these obligations will be tolled during any period of noncompliance, meaning any violation of these terms will effectively extend the restriction period. This non-compete agreement aims to protect Ella Cafe's market and brand integrity by preventing former owners from leveraging their knowledge and resources to directly compete with existing Ella Cafe franchises.