What is considered a 'Competitive Business' in relation to a Sonesta Simply Suites franchise?
Sonesta_Simply_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
During the term of the Franchise Agreement, you may not engage in a Competitive Business (defined below). You must obtain similar covenants from the personnel we specify, including officers, directors, managers, and other employees attending our training program or having access to Confidential Information. However, we do not require you (or your Principal, if you are a legal entity) or the Management Company to sign an agreement not to compete with us after expiration or termination of the Franchise Agreement. You may not use, copy, or disclose any Confidential Information, other than as necessary to operate your Hotel during the term of the Franchise Agreement. We reserve the right to require that any employee, agent, or independent contractor that you hire execute a non-disclosure agreement to protect the Confidential Information. We reserve the right to regulate the form of non-disclosure agreement that you use and to be a third-party beneficiary of those agreements with independent enforcement rights.
"Competitive Business" means any entity that (i) owns in whole or in part, whether directly or indirectly, a hotel brand or trade name (whether or not licensed) that, in our judgment, competes with the Brand Hotels or Network Hotels, irrespective of the number of hotels comprising the competitive hotel brand, (ii) grants franchises or licenses for the operation of any competitive hotel brand, or (iii) provides services to any entity that falls under subsection (i) or (ii). Notwithstanding the foregoing, no entity will be considered a Competitive Business if such entity has an interest
merely as (a) a franchisee of a competitive hotel brand; (b) a management company operating hotels on behalf of multiple brands; or (c) a passive investor that has no control over business decisions of such brand.
Source: Item 15 — OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS (FDD pages 65–66)
What This Means (2025 FDD)
According to the 2025 Sonesta Simply Suites FDD, a 'Competitive Business' is defined as any entity that (i) owns in whole or in part, whether directly or indirectly, a hotel brand or trade name (whether or not licensed) that, in Sonesta Simply Suites' judgment, competes with the Brand Hotels or Network Hotels, irrespective of the number of hotels comprising the competitive hotel brand, (ii) grants franchises or licenses for the operation of any competitive hotel brand, or (iii) provides services to any entity that falls under subsection (i) or (ii). This definition applies during the term of the Franchise Agreement.
However, the FDD specifies exceptions. An entity is not considered a 'Competitive Business' if its interest is merely as (a) a franchisee of a competitive hotel brand; (b) a management company operating hotels on behalf of multiple brands; or (c) a passive investor that has no control over business decisions of such brand. Furthermore, franchisees, their owners, and their immediate family members are restricted from having a direct or indirect ownership interest in a Competitive Business, unless the equity ownership is less than 5% of a Competitive Business whose stock is publicly traded on a recognized United States stock exchange.
These restrictions also extend to performing services for a Competitive Business as a director, officer, manager, employee, consultant, representative, lessor, or agent, or directly or indirectly appropriating, using, or duplicating the Franchise System or Brand Standards for use in any other business. Sonesta Simply Suites also requires franchisees to obtain similar covenants against competition from specified personnel, including officers, directors, managers, and other employees attending their training program or having access to Confidential Information.