Under the Exit franchise agreement, what constitutes a prohibited action related to the franchise that could lead to termination?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
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.
21.3. Reasonableness
The parties expressly agree that the limitations contained in this Section 21 are reasonable and necessary to protect Subfranchisor and other EXIT franchises if this Agreement expires or is terminated for any reason.
**21.4.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to the 2025 Exit Franchise Disclosure Document, several actions are explicitly prohibited and can lead to the termination of the franchise agreement. These include specific violations of the in-term covenant not to compete, such as engaging in a real estate brokerage business that operates similarly to the Exit system within a ten-mile radius of the franchisee's office or using a reward system for sponsoring sales representatives. Soliciting or inducing sales representatives or existing Exit franchisees to terminate or not renew their relationship with Exit or the subfranchisor is also prohibited.
Further, franchisees are prohibited from diverting business or customers of an Exit franchisee to a competitor and from performing any act that is injurious or prejudicial to the goodwill associated with the Exit system. Other grounds for termination without the possibility of a cure include failing to open the Exit office within 120 days of the agreement date, voluntarily abandoning the franchise, or failing to comply with the agreement's provisions three or more times, regardless of whether the issues were corrected after notice. Conviction of a felony or misuse of escrow or trust funds can also lead to termination.
These stipulations are designed to protect Exit's brand integrity, market share, and franchisee network. Prospective franchisees should carefully review these covenants and understand the potential consequences of non-compliance. The breadth of these restrictions highlights the importance of aligning business practices with Exit's standards and maintaining ethical conduct to avoid jeopardizing the franchise agreement.