Buying a Franchise: Information that You Need to Know about your "Protected Territory

  • A “protected territory” is a designated geographic area identified and defined in your franchise agreement wherein you may be granted the exclusive right to establish and operate your franchise. When a protected territory is granted, typically, the franchisor will agree to prohibit other franchisees from operating and establishing a competing franchise within the designated territory. The protected territory only applies to competition from franchisees within your own franchise system and will not protect you from third-party competitors.
  • Many franchisors and franchise systems do not offer a protected territory to their franchisees. Although – from a franchisee perspective – it would always be preferable to possess a protected territory, under “certain circumstances” it may not be practicable or reasonable to expect one. Issues concerning the negotiation and potential implementation of a protected territory should be of critical concern to you and should be discussed and evaluated with your franchise lawyer. When considering and evaluating the existence and/or non-existence of a protected territory, some factors to consider, include:
  • The franchisor’s history and prior practices respecting the establishment of franchised locations. For example, are existing franchisees satisfied with the franchisors policies and procedures for granting and locating new franchises, or, do they complain about “encroachment” and diluted sales resulting from over-expansion.
  • The scope of your protection within the defined “protected territory”. This is an important issue that is too often overlooked and an issue that should be of particular concern when purchasing a franchise that provides “services”. When purchasing a service-based franchise - as opposed to a franchise that simply sells a product from a fixed location – you must evaluate the scope of the protections that will be granted to you within your protected territory. Although competing franchisees may be prohibited from establishing a storefront or physical location within your territory – depending on the terms of your franchise agreement – competing franchisees may nevertheless be permitted to solicit or provide services to customers located within your territory.
  • Potential competition from non-traditional locations and “captive accounts”. To the extent that you are afforded a “protected territory” you must be aware that in the majority of franchise agreements one significant exclusion from “exclusivity rights” associated with a protected territory relates to the franchisors ability to establish and grant competing franchises within “non-traditional” or “captive market” locations – even if they are located within your protected territory. Examples of non-traditional or captive market locations, include universities, airports, stadiums, arenas, malls and, supercenters. When evaluating your proposed business location and your protected territory, evaluate the existence of non-traditional locations within your territory and the potential impact that competition from these locations may have on your new business.



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IMPORTANT DISCLAIMER: The information contained on this website is provided for general educational purposes only, should not be relied on as legal advice and does not serve to create an attorney client relationship. In utilizing this website you acknowledge that there is no attorney client relationship between you and Charles N. Internicola, Esq. and that the information contained on this site does not and cannot serve as a replacement for the competent legal advice of a licensed attorney in your state. Further you acknowledge that any and all citations to cases and statutes must be independently verified by competent legal counsel to be current and to be accurate. The content of this website is subject to the Copyright of its author and owner, Charles N. Internicola, Esq.

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