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How will I know for certain that my franchise’s territory will be protected upon becoming a franchisee?
John Pratt writes:
Not all territories are protected. There are some franchises which operate without any territory, so that franchisees can trade anywhere in the UK, although they are uncommon. More common are franchises which do not grant any exclusivity. Only 60 per cent of franchises grant an exclusive territory.
Assuming that your franchise agreement does contain exclusive rights in a territory, the wording of the exclusivity has to be looked at very carefully. Does the exclusivity relate to customers or premises? If the former, all customers in the allocated territory will be serviced by the franchisee and no one else. In the latter case, a franchisee is guaranteed that no other person will be allowed to “set up shop” in their territory, although somebody could open premises just outside the allocated franchisee territory and service customers in the allocated territory.
A further difficulty is that competition law currently does not allow franchisors to prevent franchisees from responding to unsolicited enquiries from another franchisee’s territory. Franchisees can be prevented from actively looking for customers outside their territory, but not prevented from responding to enquiries. In other words, exclusive territories are not quite as exclusive as they once were!
A further difficulty is the internet which, of course, does not have any territorial limitations. While franchisees cannot be prevented from having their own website, generally franchisors encourage use of a single franchisor website and, in those circumstances, the franchise agreement needs to set out clearly what is to happen to customers from the franchisee’s territory who are enquiring on the franchisor’s website.
John Pratt is senior partner at specialist franchise firm Hamilton Pratt and has advised franchisors for over 25 years.
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