Who is bound by the post-term covenants in the Exit Agreement?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee and Franchisee's shareholders, partners, members, directors, officers and guarantors of this Agreement will not, for a period of one (1) year following the termination, assignment or expiration of this Agreement on their own account or as an employee, agent, consultant, partner, officer, director or shareholder of any other person, firm, entity, limited liability company, partnership or corporation, directly or indirectly,
- (a) within a ten (10) mile radius of Franchisee's office, own, operate, lease, franchise, conduct, engage in, be connected with, have any interest in or assist any person or entity engaged in any real estate brokerage business, which business utilizes at any location a reward system for "sponsoring" sales representatives at any of its locations, or in any other way operates substantially similar manner to the EXIT System; or
- (b) within a ten (10) mile radius of Franchise's office own, operate, lease, franchise, conduct or engage in, be connected with, have any interest in or assist any person or entity engaged in any real estate brokerage business, provided the foregoing shall not apply if this Agreement expired at the end of its term.
- (c) solicit or induce any person who is, at the time of termination or expiration of this Agreement, retained as a sales representative (as the phrase "sales representative is defined in the EXIT Formula attached to this Agreement, which may from time to time be amended at the discretion of EXIT) of any EXIT franchisee to stop serving as an agent for that party; or
- (d) within the state(s) in which the Protected Territory is located, own, operate, lease, franchise, conduct, engage in, be connected with, have any interest in or assist any person or entity engaged in the business of selling, managing or servicing real estate franchise organizations, irrespective of whether services are provided directly to the franchising operations or the System's franchisee's; or
- (e) solicit or induce any person who is, at the time of termination or expiration of this Agreement an EXIT franchisee or an equity-holder in any entity which is, at the time of termination or expiration of this Agreement an EXIT franchisee, to terminate or not renew his relationship with EXIT or Subfranchisor; or
- (f) divert, or attempt to divert, any business or customer of an EXIT Franchisee, to any competitor; or
- (g) do or perform any other act injurious or prejudicial to the goodwill associated with the EXIT System.
The parties expressly agree that the covenants contained in this section are each independent and are reasonable and necessary to protect Subfranchisor and other EXIT franchises if this Agreement expires or is terminated for any reason.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the post-term covenants apply not only to the franchisee but also to other related parties. Specifically, the agreement states that the post-term covenants apply to the franchisee and the franchisee's shareholders, partners, members, directors, officers, and guarantors. These parties are restricted from engaging in activities that compete with Exit for a period of one year after the termination, assignment, or expiration of the franchise agreement.
These restrictions include owning, operating, or being involved with any real estate brokerage business within a 10-mile radius of the franchisee's former office if that business utilizes a reward system for sponsoring sales representatives or operates similarly to the Exit system. The restrictions also prevent the franchisee and related parties from soliciting Exit's sales representatives or franchisees to terminate their relationship with Exit. Furthermore, they are prohibited from engaging in the business of selling, managing, or servicing real estate franchise organizations within the state where the protected territory is located and from diverting business or customers from an Exit franchisee to a competitor.
The FDD emphasizes that these covenants are independent and reasonable to protect Exit, its subfranchisors, and other franchisees. This broad application of post-term covenants is designed to prevent individuals closely associated with the franchisee from leveraging their knowledge and experience gained during the franchise term to unfairly compete with Exit after the agreement ends. Prospective franchisees should carefully consider these post-term obligations and ensure that all relevant parties are aware of and willing to comply with these restrictions.
It is important for potential Exit franchisees to fully understand the scope and implications of these post-term covenants, as they can significantly impact the future business activities of the franchisee and related parties. Franchisees should seek legal counsel to fully understand the restrictions and ensure compliance to avoid potential legal issues after the franchise agreement concludes.