Franchisees generally want an exclusive territory that is protected from encroachment by other franchisees or the franchisor’s company owned stores. Unfortunately franchisees are often under the mistaken belief they have an "exclusive territory" when they really don’t.

You must consider whether the franchisor has reserved rights that could cause encroachment or competition from the franchisor, other franchisees or even other companies the franchisor may acquire in the future.

Further, franchisors may have a Web site where it conducts online retailing but franchisees are not permitted to conduct online retailing themselves.  Do you really have an exclusive territory if the franchisor conducts sales online? If the franchisor’s online sales are significant, it could potentially divert customers away from the franchisee.

So don’t gloss over the territory provisions in the FDD or franchise agreement. If you are told that you have an exclusive territory when meeting with the franchisor’s representatives you better make sure that is actually the case.

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Rush Nigut is a shareholder with the Brick Gentry Law Firm in West Des Moines, Iowa. His practice includes both transactional and litigation matters including franchising and business law. Rush started his legal blog, Rush on Business, in 2006. He has been quoted…

Rush Nigut is a shareholder with the Brick Gentry Law Firm in West Des Moines, Iowa. His practice includes both transactional and litigation matters including franchising and business law. Rush started his legal blog, Rush on Business, in 2006. He has been quoted or referenced by hundreds of other blogs, websites, and publications. He also is the editor of the Brick Gentry Trial Team blog and can help you identify the most qualified lawyer at Brick Gentry to handle your case. Our lawyers have a breadth of trial experience in personal injury, employment discrimination, business litigation, IP law, and class action cases.