What is the Engel & Volkers franchisee prohibited from diverting to another person or entity?
Engel_Volkers Franchise · 2025 FDDAnswer from 2025 FDD Document
In addition, during the time periods described above, Recipient agrees not to divert any business that should be handled by Franchisee and its franchised Residential Real Estate Brokerage to any other person or entity. It is the intention of these provisions to preclude not only direct competition but also all forms of indirect competition, such as consultation for competitive businesses, service as an independent contractor for competitive businesses, or any assistance or transmission of information of any kind which would be of any assistance to a competitor. Nothing herein will prevent Recipient from owning for investment purposes up to an aggregate of 5% of the capital stock of any competitive business, so long as the competitive business is a publicly held corporation whose stock is listed and traded on a national or regional stock exchange, or through the National Association of Securities Dealers Automated Quotation System (NASDAQ), and so long as Recipient or Franchisee do not control the company in question.
Source: Item 22 — CONTRACTS (FDD page 88)
What This Means (2025 FDD)
According to Engel & Volkers' 2025 Franchise Disclosure Document, during the term of the Franchise Agreement, a franchisee is prohibited from diverting any business that should be handled by the franchisee's Engel & Volkers Residential Real Estate Brokerage to any other person or entity. This restriction is designed to prevent both direct and indirect competition. Indirect competition includes activities such as consulting for competitive businesses, working as an independent contractor for competitors, or providing any information that could assist a competitor.
This provision aims to ensure that the franchisee remains fully committed to the Engel & Volkers system and does not use their position to benefit competing businesses. However, there is an exception: the franchisee can own up to 5% of the capital stock of a publicly held competitive business for investment purposes, provided the stock is listed on a national or regional stock exchange (like NASDAQ) and the franchisee does not control the company.
This clause is typical in franchise agreements to protect the brand and the franchisor's interests by preventing franchisees from using the franchisor's resources and reputation to aid competitors. Prospective Engel & Volkers franchisees should be aware of these restrictions and ensure they do not engage in any activities that could be construed as a violation of this clause during their franchise term.