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What’s the difference between an exclusive and a protected territory?

Author: Shelley Nadler

answered by Shelley Nadler

Legal director at Bird & Bird

Shelley Nadler writes:

The terms ‘exclusive territory’ and ‘protected territory’ are often confused. They can sometimes be used interchangeably by franchisors, but in franchising they usually have different meanings.

If your franchise territory is truly exclusive, your business will be protected from competition from the franchisor and other franchisees operating in your territory. If the territory you’re granted is described as ‘protected’, a franchisor agrees with a franchisee that it will not appoint an additional franchisee in that franchisee’s territory. However, the franchisor can operate the franchise business in your territory.

Many franchise systems grant their franchisees an exclusive or protected territory. This could be based on a radius from the premises, postcodes or a city or town. Even if a franchisee is granted an exclusive territory, this could be a small area, so it’s important to find out the size of the territory that’s being granted and to investigate if it offers enough protection for you to successfully operate a franchise business.

There should be a grant clause in the franchise agreement that will set out the rights you have been granted by the franchisor. The nature and extent of the exclusivity you are granted in the franchise agreement needs careful consideration by a British Franchise Association affiliate solicitor.

Shelley Nadler is a legal director in Bird & Bird’s international franchising team and has many years’ experience of advising on all aspects of franchising.

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