Your Franchise Territory May Not Be Exclusive
June 29, 2020
Mississippi entrepreneurs may conduct business as a franchisee under a franchise arrangement. The franchise agreement and disclosure documents will likely include language that establishes the franchisee’s “territory.”
Forbes explains some key terms that franchisees should understand when negotiating territory language. Our firm represents business owners in the review, negotiation and enforcement of contracts.
Understand that “Protected” and “Exclusive” Have Different Meanings
You may think that a reference to protected territory in your franchise agreement gives you the exclusive right to operate your franchise within a certain region. However, the terms “exclusive” and “protected” do not necessarily mean the same thing.
If you have an exclusive territory, your business should be the sole channel for customers to acquire the franchisor’s services or products in your area. In contrast, if you have a protected territory, your franchise agreement may allow competing sales and distribution by the franchisor. In some cases, your franchise agreement may not include any territorial protection, leaving you vulnerable to competition by both the franchisor and other franchisees.
Ask Questions to Understand the Scope of Your Territory
You should evaluate whether your franchisor has a comprehensive plan for establishing territories:
Population, zip code or demographics may define your territory.
A franchisor may sometimes agree that you can market or sell goods and services in an open territory until it becomes franchised. If so, you should understand what happens to your customers if the open territory becomes franchised.
The franchisor may want to sell to consumers through alternative distribution channels, including the internet, grocery stores or retail shops.
Your territory helps determine the success of your business, shaping your customer base and impacting your revenue potential. However, franchisors and franchisees sometimes disagree about how to identify and define a territory. You may visit our website for information about developing a strategy to handle contract disputes.