When a franchise is sold with an exclusive territory, it means that the franchise agreement includes details about an exclusive zone where the franchisor does not create another franchise to compete with the franchisee who owns that territory. In many cases, a card is attached to the franchise agreement to highlight the franchisee`s exclusive area. Depending on the type of franchise, this can range from a specific address or premises, such as a specific shopping mall or defined suburb, to cities or even larger geographic areas. The theory behind these areas is that a franchisee can build their business without the threat of someone else within the same franchise system that competes with them. Of course, this does not prevent competitors outside the franchise system from competing with their business. Always check your franchise agreement to find out your exact terms and conditions around the exclusive zone. Although you have obtained exclusive territory, this may come with legal restrictions. “Grey areas” are areas that are not part of another franchisee`s territory, nor of an area served by the franchisor`s “business-owned” activities. Some franchise agreements allow franchisees to serve customers in gray areas. However, this right is generally subject to the sale of the grey area to another franchisee. Mark Sherry is a partner at Harmans Lawyers in Christchurch. He is a franchise specialist.
Phone (03) 352 2293 or e-mail email@example.com This is not always true. Although the term “exclusive” differs from “protected” in franchisor terminology, many franchises use the two interchangeably. Review what “exclusive” and “protected” mean as part of your due diligence with the franchisor. Ed Teixeira is Chief Operating Officer of Franchise Grade and was the founder and president of FranchiseKnowHow, L.L.C., a franchise consulting firm. Ed has over 35 years of experience as a senior executive for franchisors in retail, healthcare, manufacturing and software, and has also been a franchisee. Ed has advised his clients to franchise their existing business and those looking for strategic solutions to operational, marketing and franchise relationship issues. He has managed international licenses in Europe, Asia and South America. Ed is the author of Franchising from the Inside Out and The Franchise Buyers Manual and has spoken at a number of venues including the International Franchise Expo and the Chinese Franchise Association in Shanghai, China. He has conducted seminars, written numerous articles on franchising and has been interviewed on television and radio and testified as an expert on the subject of franchising.
He is an expert in franchise valuation at Business Brokerage Press. Ed can be contacted under firstname.lastname@example.org For fixed-location franchises, the “jurisdictional issue” depends on whether or not the franchisor grants you territorial protection around your point of sale. For example, does the franchise agreement stipulate that the franchisor does not grant franchises within a defined radius around your retail business? Again, you need emergency clauses in the agreement to protect your territorial rights in the event of a takeover or merger. Know how you will be compensated. Sometimes the existing franchisee receives a fee from the new competitor. The franchisor may agree to the closure of newly acquired competitors or arrange to sell the competing location to the existing franchisee at a competitive price. Unlike an exclusive territory, franchisees of the same system can open a nearby location in the same geographical area in a protected area. Let`s say you open a franchise on First and Park. They are the only business of their kind within a 5-mile radius until another franchisee of the same system opens a location on Second and Park. You can even see your customers move from you to the other franchisee`s store.
When people think of territories, they tend to think of geographical areas. In most cases, territories are derived in this way. However, depending on the type of franchise system and how businesses are attracted, areas can be divided using a variety of methods. A good example of this is where stores are derived over the phone, for example, pizza franchises that offer home delivery. In such cases, territories can literally be divided between franchisees by dividing different switchboards between them, with calls routed directly to the franchisee concerned by the different switchboards. When you buy a franchise, assessing your franchise territory and the protection afforded to you is an essential task. Although your franchise agreement determines your franchise territory and the level of protection afforded to you under Section 12 of the FDD, your franchisor is required to disclose the scope, size and level of protection it offers you in your franchise territory. Another important consideration is: what happens if your franchisor is purchased by another company or acquires a competitor`s brand with franchises in your territory? Newly acquired franchises can operate under your franchise brand, which will siphon off your customers. Typically, the area is geographically defined for a mobile phone/service company (e.g.
B a city or area demarcated in black on a map in situations where it is difficult to simply define the area in writing). Postal codes in the area are usually included as most online management systems are controlled by postal code. All postal codes issued in the future in the specified geographical area will be assigned to the area. Ultimately, it is important to have a full understanding of your contractual rights. Review the terms of your franchise agreement and franchise disclosure document with an experienced franchise lawyer to determine if you have any exclusive, protected, or open/non-existent territorial rights. If the franchisor is sufficiently established, you may even be able to negotiate better territorial protection. There are three types of franchise zones. It is an exclusive franchise territory, a protected franchise territory and an open territory (sometimes called non-existent). In the event of population growth, this could give the franchisor the right to open a competing franchise near your “exclusive” territory. Find out what the franchisor will do to protect your customers.
Many franchise lawyers point out that the land rights offered are sometimes not visible in the franchise agreement and the franchise disclosure document. There are cases when you can`t find these rights at all. What can define an area differs from one franchise system to another. Territories come in many shapes, sizes and styles. The most common of these are presented as follows: There may be a clause in the franchise agreement that grants the franchisor a reserved right to distribute products through what is commonly referred to as “alternative distribution channels” with your exclusive territory. This means that even if the franchisor may be prevented from allocating another franchise or from operating a business located and operated in the franchisee`s territory, it has the right to sell the product through other channels, such as; Online, kiosks, food trucks, shopping malls, airports, hotels, stadiums and amusement parks. The reservation may allow the use of the franchisor`s trademarks or be operated under a similar or different name. Although the area technically belongs to you, owning the exclusive territory does not give you the right to open more locations in the same area unless franchise agreements allow it.
If this sounds strange, it`s because exclusive territories are divided in countless ways. The level of protection that may or may not be afforded to you under your franchise agreement varies from franchisor to franchisor and often depends on the industry and the nature of the business. Some franchise systems offer exclusive territories where other franchisees are not allowed to operate or sell, while other systems offer you the opportunity to operate and sell in one area, but without protection from other franchisees. .