Your franchise territory, as governed by your Franchising Agreement, is the territory in which you are contractually able to carry on your franchise business. Such territories can be exclusive or non-exclusive, or a hybrid of both, and exactly where you can carry on your franchise business, market your franchise business and take referrals for new business will be detailed in the depths of your franchise agreement. As carrying on business outside your territory can represent a breach of your franchise agreement, it’s very important you properly understand just what you can do and where within your franchise business.
Exclusive vs Non-Exclusive
An exclusive franchise territory is just that, exclusively yours. Your franchisor is not permitted to grant another franchise within that territory. Further, subject to the terms of your agreement, you may only be permitted to carry on business within that territory. A non-exclusive territory means your franchisor is free to grant another franchise within the area in which you conduct business. Sometimes territories are very limited, for example, to a particular suburb or shopping centre, to allow for the growth of the franchise network.
Your franchise agreement may also prescribe a specific marketing territory, being a defined geographic area in which you are entitled to solicit for business, be it by way of advertisements in local publications, letter box drops, or something more creative. The lines can become a bit blurry here, for example, if a publication covers both yours and a neighboring territory.
First Option Provisions
Sometimes, a franchise agreement will contain a provision for a first option within a defined territory. Put simply, this means if the Franchisor intends to open a new franchise or an existing franchise is available for sale within a prescribed territory, you will have the ‘first option’ to purchase that new franchise, in addition to your existing one.
There can be a number of exceptions to these provisions relating to territory. For example, a franchisor may be able to grant work to another franchisee within your territory if you are unable to carry out the work, or you may be able to accept personal referrals from customers in another franchisees territory. It’s all dependent on the terms of the Agreement.
If you need assistance establishing precisely what your franchise territory is, or believe either party may have breached the provisions relating to territory, you should contact a franchise lawyer who will look at your franchise agreement and advise you accordingly. The franchise team at LegalVision are very experienced in assessing territorial clauses, and will be able to assist you.