One of the most important considerations for potential franchisees to address when negotiating and signing the relevant contracts is his or her franchise’s territory. When you are operating as one location that is part of a much larger corporation, you must perform a great amount of due diligence to ensure that your assigned territory is well-defined and relatively insulated from other franchise locations. In this blog, we will give you a general idea of how to evaluate your franchise’s territory and the protections you should seek in your agreements.
How Might Your Territory Be Divided?
There are countless ways that the territory for your franchise may be defined. For brick-and-mortar franchises that attract customers to physical locations, territory will usually be laid out by geographic area. Parameters for the territory could be by zip code, municipal jurisdiction, or population density. If you are able to secure an exclusive territory for your franchise, then your franchisor will generally stay away from allowing additional locations inside your territory.
More often, though, franchisors will grant franchisees a non-exclusive territory with some protections. For example, the owner of a franchise might retain exclusive rights over his or her territory as long as the location meets certain sales quotas. Another way a physical location of a franchise might be protected within its territory is by the franchisor’s promise that the only competition would be via non-traditional service delivery methods (like internet bookings of a traveling masseuse).
One more consideration when it comes to franchise territories is what might happen when another location is placed in an open territory. Perhaps some of your territory was given to you tentatively until another franchisee opened up in that area. Would you retain some of your clients that would otherwise go to the new location? This is something to address in your franchise agreement and franchise disclosure document.
Conclusion
Depending on the financial interests of your franchisor, you might receive relatively robust protections and feel secure in your territory or you may feel as if it could be encroached upon any day. There is almost always room for negotiation when it comes to carving out your franchise’s territory.
Trembly Law Firm is Here For You
If you are thinking about becoming a franchisee, Trembly Law Firm is prepared to zealously negotiate for you and exhaust efforts to achieve an exclusive territory for your location. Call our firm at 305-431-5678 to discuss your business goals.
