Typically, franchisors offer each of their franchisees an area in which there should be no interference from direct competitors. Although franchises provide this exclusive territory for their franchisees, it is important to ensure that there are no misunderstandings about the particulars of your territory. How can you protect yourself?
Understand the fine print in the ContractThe best way to ensure that your territory is protected is to scrutinize the fine print in your contract along with your attorney. The document should provide all of the legal details about your specific geographical rights with regard to your business.
Study the contract for information relating to territorial exclusivity. The greater the detail, the better your territorial protection is.
The contract should explain the boundaries of your area as well as information about contingencies that could arise at any time. It should include detail on any territorial renegotiations that would be permitted within particular timeframes. Additionally, the specifics of the contract should state what would occur if the franchisor were to start a new franchise comparable to the one that you are involved in, but under a different trademark.
ReorganizationsA situation that could be cause for concern with regard to your franchise territory might occur if your franchisor would either merge with another company or acquire another similar company. The other organization may have their franchises in the same area that you are located in. If this occurs, there could possibly be more than one franchise operating with the same trademark within a particular area, thereby impacting your earnings.
Therefore, the contract should state specifically what would happen if any type of reorganization occurs. There should be some form of compensation to you. One option might be that the acquired franchise would be obligated to pay a portion of its sales to the existing franchise in order to repay lost earnings. Another alternative might be having the contract state that the franchisor be required to close the other franchise or sell it to you so that it does not infringe upon your territory.
Finally, it is very important to keep in mind that you must be sure of your territorial protection before signing the contract. If something occurs after the fact and there is nothing stated in the contract to protect you, you will probably have limited recourse.