Most Franchise Agreements Grant Franchisees An Exclusive Territory

To limit this risk, the franchise agreement will often contain the franchisee`s right to remove exclusivity or change the boundaries of the territory if the franchisee fails to meet the required performance targets or violates the franchise agreement. This protects the franchisor from a low-performing franchisee, who may be sitting on an untapped gold mine but refuses to develop it. However, franchisors risk putting all their eggs in one basket by granting exclusive territories if surfaces are granted to franchisees who do not fully develop them. A value bank of potential customers could be unused if the sedentary franchisee is satisfied with its existing revenue and does not develop the business. Not all franchise agreements grant you a right to exclusive territory. In case you are not entitled to exclusive territory, a franchise agreement generally establishes that your activity is limited to specific premises. The specific premises are located in a non-exclusive marketing area and cannot move without the explicit written consent of the franchisor. If there is no exclusive grant, there is nothing to prevent the franchisor from opening another franchise near your business at any time. Each franchise agreement should define a geographic area in which the franchisee can operate freely, even if the area is limited to a single point of sale. Within the territory, the franchisee is free to create outlets and advertise on behalf of these outlets. The granting of the territory may be exclusive or non-exclusive.

In many cases, the granting of deductibles is exclusively within a specific area, according to the American Bar Association. If the rights granted are not exclusive, the franchisee must share the territory with other franchisees. The granting of exclusive territory generally prevents the franchisor from placing another franchise within the territory, but does not give the franchisee the right to open another franchise unit within the territory. Nor does it give the franchisee the exclusive rights of customers within the territory. A franchisor cannot prevent a franchisee from making transactions in a territory with customers who are in the territory of another franchisee.