The nature of territory rights is always a hot topic for prospective franchisees. Many people want an exclusive or protected area to operate their business in return for paying the upfront franchise fee. So the question often asked is -- what rights do I have to a territory under my franchise agreement?
Is the territory exclusive or non-exclusive?
You may be granted exclusive rights for a territory or only the right to operate at a specified location (like a shop in a shopping centre). If your rights are exclusive for a territory there will generally be conditions attached -- usually in the nature of minimum performance requirements. If the territory rights are to be exclusive the agreement should prevent both the franchisor and other franchisees prevented from operating in your territory.
Some franchise systems have no territory protection, meaning other franchisees can open close by.
Other terminology is sometimes used in franchise agreements such as marketing area or first right of refusal area. These terms can all have different meanings and different implications for the franchisee. Even "exclusive territories" are not always exclusive, depending on how the franchise agreement has been drafted.
Seek advice if you're not sure
It's important to understand the nature of any territory rights that are given to you and any conditions or restrictions that apply. This involves understanding not only the franchise agreement but the commercial considerations about how the business operates and what type of territory rights are appropriate.
How we can help
We regularly work with franchisees before they enter into franchise agreements, and also during the course of the agreement where disputes or uncertainty arise regarding their rights under the franchise agreement. Contact Peter McLaughlin at redchip lawyers on 07 3852 5055 or email PeterM@redchip.com.au to discuss how we can help you.
This article is a summary of a chapter from "Buying your Franchise", book 1 in the ‘Shaking the Profits from Franchising’ book series. Please contact us if you would like to purchase a copy.