What is a franchise territory?

A franchise territory is the geographic area in which the franchise agreement defines your operating rights and, depending on the grant, restricts the franchisor from placing competing outlets. It is a contract right whose scope is set entirely by the agreement’s language.

Does every franchise come with an exclusive territory?

No. Many systems grant no exclusivity at all. If no exclusive territory is granted, the FTC Franchise Rule requires Item 12 of the FDD to state that you may face competition from other franchisees, company-owned outlets, or other channels of distribution.

What is franchise encroachment?

Encroachment is the placement of a new same-brand outlet, or sales through other channels, close enough to your business to materially divert your customers. Whether you have a remedy depends on your territory grant, the reserved-rights language, and state law on the implied covenant of good faith.

Can a franchisor sell online into my exclusive territory?

Usually yes, unless the agreement says otherwise. Most franchise agreements expressly reserve internet and catalog sales to the franchisor, and an “exclusive” territory typically only restricts physical outlets. Territory language is dense, system-specific, and the single most common source of buyer regret we see. Reidel Law Firm reviews FDDs and franchise agreements for prospective franchisees on a flat-fee basis — every item, every exhibit, territory carve-outs included — so you know exactly what you are buying before you sign. Get a flat-fee FDD review.

FRANCHISE LAW

Franchise Territories: What Your Agreement Actually Grants

Schuyler 'Rocky' Reidel July 15, 2024 7 min read

A franchise territory is the geographic area — and sometimes the customer set — in which your franchise agreement defines your rights to operate. What most buyer