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Exclusive territory rights in franchising are a critical component of the franchise agreement. These rights grant franchisees the right to operate in a particular area exclusively. They can be valuable, but not all franchisees have them. Exclusive territory can provide market protection and the opportunity to build your business without internal competition. Breaches of exclusive territory can breach the franchise agreement and have consequences for your business. Ensuring your franchisor addresses and remedies a breach can be critical for these reasons. This article will explain exclusive territory rights and outline the steps you should take if you identify a breach.
What is Exclusive Territory in Franchising?
Exclusive territory rights refer to a franchisee’s exclusive right to operate the franchise within a specific geographic area. This right means no franchisees can operate the same brand within that area. A franchisor might define the exclusive territory as a particular region, city, county or radius. Not all franchisees have exclusive territory rights. Whether you have them depends on the specific terms of your franchise agreement.
The benefits of exclusive territory include:
- protection from direct competition from other franchisees of the same brand within your territory;
- the incentive to invest in local marketing and business development; and
- it enables the ability to build and maintain a loyal customer base.
If another franchisee breaches your territory rights, they have operated the franchise business within your exclusive territory. For instance, if you have a single-unit coffee shop franchise with a small defined exclusive area around your franchise location and another franchisee within your brand sets up a new coffee shop unit within that radius, this would constitute a breach. Alternatively, if you operate a mobile automobile repair unit within an exclusive territory and find that another franchisee has been attending to customers within your area, this would also constitute a breach.
The following sections explain the steps you should take if you think another franchisee has breached your exclusive territory rights.
1. Review Your Franchise Agreement
If you identify a potential breach, your first step should be to review the terms of your franchise agreement. It is crucial to clarify whether you have exclusive territory. If you do, the franchisor should have explicitly outlined its scope within the contract.
If you have exclusive territory rights, identify whether the franchisor has outlined the consequences and remedies for breaches. It is also critical to assess whether there are any limitations to your rights. For example, a franchisor might stipulate in the franchise agreement that the right is subject to you meeting particular minimum performance standards.
Once you have established your rights, you can determine whether a breach has occurred.
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2. Document the Breach
Your next step should include documenting the breach, noting the date and location, and keeping a record of relevant communications. You might also document how the breach affected your business, such as through the loss of sales.
3. Notify the Franchisor
You should inform the franchisor once you have confirmed your rights and detailed the breach. Notify them of the violation in writing. Provide as much information as possible and explain its impact on your business. You can request that the franchisor immediately address the breach and restore your rights.
4. Seek Legal Advice
Exclusive territory agreements can have several potential legal complexities. The process of addressing a breach may not be straightforward. You may require legal support to secure your rights.
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A franchise lawyer can review your circumstances and advise you on your rights and potential strategies to address the situation.
Key Takeaways
Exclusive territory rights are rights that some franchisees have. Whether you have them depends on the terms of your franchise agreement. You can protect your franchise business by understanding exclusive territory rights and how to handle a breach.
If you identify a potential breach of your territory rights, it is essential first to check that your franchise agreement affords you such rights. When you read the agreement, also review whether the franchisor included potential remedies or placed limitations on your rights. Next, you should document the breach: write down what happened and when this began. Then, you should notify the franchisor of the breach as soon as possible.
Sometimes, addressing a breach of your exclusive territory rights can be challenging. It can be beneficial to seek legal advice to help you navigate the legal complexities of this process. If another franchisee has breached your exclusive territory rights, LegalVision’s experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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