Why are Territory Rights Important in a Franchise Agreement?

When it comes to franchising, territory rights are an important part in determining the distribution of business among franchisees. Although there could be other ways at which a territory could be defined, it most commonly refers to a geographical region that a franchisee is exclusively assigned to operate. If you have received a franchise agreement, it is important to understand how the territory may impact your business and to receive legal advice from an experienced franchise lawyer before entering the agreement.

Demographics

Depending upon the nature of the business, the demographics of the territorial area may play a large impact on your franchise’s success. For example, if your franchise provided mobile sport services for children, it may have more success in an area where more families reside. If you are in the process of purchasing a franchise that is confined to a particular territory, requesting demographic details from the franchisor may assist you in determining the viability of the business. Of course this consideration would apply to all franchisees whose model is dependent upon demographic factors.

Retail Marketing Area

Franchises that operate in a retail area may not be able to restrict the customers who have access to their business. For example, if you are a franchise operating in the central business district of your city, the customers you have access to may come from other parts of the city, or even from overseas! In this case, how would a franchisor be able to enforce territorial rights? The franchisor may map out the distance or concentration of franchises that can operate within a certain area. This can help in distributing the amount of customers to the various franchisees. The franchisor can also assign specific areas where the franchisee can promote and market their franchise.

Online Sales

The issue of territory becomes even more interesting if the franchise has an online platform. If the good or service of the franchise can be sold directly to the public through an online medium, to what extent can you enforce your own territorial rights as a franchisee? To resolve this issue, it is common for franchisors to take any sales that come from an online platform.

Ultimately, territory rights are important as it can affect the success of your franchise. If you do not consider the implications of the territorial right, you may not fully understand how the franchise works and if their system is one that is viable. Some important questions you may want to consider:

• Will I be able to provide services to a customer in another territory if they were referred to me?
• How are the territorial rights being distributed? Do I have access to the demographic details?
• Would I be able to negotiate my territory or any franchise fees if I feel that I am at a disadvantage to other franchisees?
• What happens if another franchisee is taking clients in my territory?

These are all important questions that a franchise lawyer can explain to you in more detail. Each franchise is different and the Franchise Agreement will be the document that will determine your territorial right, and maybe even the success of your business in the future. Get in touch with one of the LegalVision franchise lawyers to run you through the key issues of your Franchise Agreement!