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How Long Is A Standard Non-Compete Agreement?



Posted By: Joe Ranieri, Business Broker: LA, Orange Counties, California.   For those who don't know, a non-compete agreement is a contract between a buyer and seller of a business, which after the sale, prohibits the seller from engaging in direct competition with the business they previously sold. Joe Ranieri (Business Broker) adds this topic to a BizBen Discussion Post.


Comments & Feedback From Pro Intermediaries & Pro Advisors On BizBen:

For those who don't know, a non-compete agreement is a contract between a buyer and seller of a business, which after the sale, prohibits the seller from engaging in direct competition with the business they previously sold. As an example, with a non-compete agreement in place, a guy can't sell his sandwich shop, which he owned for five years, and then in six months open another sandwich shop, similar to the one he just sold, across the street or around the corner, which directly competes with the new owner of the business he just sold.

Many business brokers will have the language for a non-compete agreement buried somewhere in their standard purchase agreement that they use, but some inexperienced buyers who buy a business through for-sale-by-owner may not know or be thinking about getting this agreement agreed upon, and some sellers may not know what would be a standard "reasonable" amount of time and territory, if ever challenged in court at a later time, sometime after the sale.

I've found that for a standard restaurant, bar, mailbox store, or any other brick and mortar retailer, that between 3-5 years is a reasonable amount of time to ask the seller to stay out of the marketplace. The territory specified or number of radius miles from the business sold usually matches the number of years specified, so 3 years/3 miles or 5 years/5 miles is standard, and most often agreed upon. "Reasonable" is the operative word, so asking for 10 years and 50-mile radius would probably be deemed "unreasonable". When someone buys a business, they are buying the goodwill of the business, which an agreement not to compete is a part of, among other things.




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