When you open up your franchise, the last thing you want is for another franchise to pop up in your neighborhood soon after. This direct competition can threaten the foot traffic that your franchise receives, and the overall success of your franchise. This is why you must understand what territory terms and conditions are stated in your Franchise Disclosure Document (FDD). Continue reading to learn whether your franchise territory is protected and how one of the experienced franchise law attorneys at FortmanSpann, LLC, can help you in determining this.
What is exclusive territory vs. protected territory?
Importantly, your FDD will likely use one of two different terms when referring to your franchise territory, which are exclusive territory and protected territory.
For one, your franchise is an exclusive territory if you are the only franchisee who may offer the franchisor’s goods and services in a designated area. So, whenever a consumer wants this specific good or service, they will have to go to you. However, sometimes an exclusive territory is contingent on specific requirements, like your sales and market penetration, and is allowed to be modified by your franchisor as they see fit.
On the other hand, your franchise is a protected territory if you are not the only franchisee who may offer the franchisor’s goods and services in a designated area. So, your franchisor may permit another location to open within the same designated area, or they may permit the goods and services to be sold online to consumers in your designated area.
Overall, it is important to note that you cannot assume that your franchisor offers you any form of exclusivity or protection at all. But the positive side to this is that, if your franchisor does not define territories, then you have more scope to expand your franchise.
Does my FDD allow my franchise territory to be protected?
Notably, Item 12 of your FDD will disclose whether you will be rewarded an exclusive territory or a protected territory, among other things. Specifics on what Item 12 should disclose are as follows:
- Location type: franchisors will disclose whether your franchise will be specific to a location or if you can select the location after the sale. If you are allowed to select the location, please note that you still require the approval of the franchisor.
- Territory size: franchisors will disclose the minimum size of the territory being offered, along with the method they used to determine this.
- Relocation conditions: franchisors will disclose under what circumstances they would approve the relocation of your franchise or your opening of additional franchise locations.
You must fully understand the terms and conditions regarding your franchise territory, and be comfortable with them, before you follow through with opening your franchise. For additional guidance, do not hesitate in contacting one of our skilled franchise law attorneys today.