Defining Franchise Territories in Australia

Before franchising an existing business, decide what each franchisee will actually have the right to serve. A territory is more than a line on a map: it affects customer access, online orders, local marketing and future expansion. Clear territory rules help prevent disputes and build trust across your franchising community.

1. Decide what your territory promise means

Start with the commercial rights, not the postcode list. Will the franchisee operate from an approved location, serve customers within a defined area, or have protection against another outlet opening nearby? These are different arrangements.

Common approaches include:

• Exclusive territory: the franchisee receives defined protection within an area, subject to any expressly reserved rights.
• Non-exclusive territory: the franchisee may operate within an area, but other franchisees or the franchisor may also serve it.
• Site-based rights: the franchisee operates from approved premises without necessarily receiving protection over surrounding customers.

Labels alone are insufficient. An “exclusive” territory could still leave uncertainty about company-owned outlets, online sales or national accounts unless the agreement explains these points.

Write a plain-English statement of your intended promise. For example: the franchisor will not establish, or authorise another franchisee to establish, a physical outlet within the defined area during the agreement, subject to specified exceptions. Have a specialist franchise lawyer translate that commercial intention into appropriate terms rather than copying this wording into a contract.

Be especially careful when converting existing operations. Identify customers, contracts and locations you intend to retain before offering territorial rights to someone else.

2. Draw boundaries using operating evidence

Equal-sized areas rarely offer equal opportunities. A compact urban territory may contain more accessible customers than a much larger regional area, while travel time can make apparently attractive demand uneconomic to serve.

Use evidence from your existing business to assess:

• Where current customers live or receive services.
• Actual travel and delivery times, including peak periods.
• Customer concentration and recurring demand.
• Competitor locations and physical barriers.
• The workload an operator can realistically fulfil.

Distinguish observed results from assumptions. Existing customers who choose your original premises may not behave in the same way around a new location.

Define boundaries so that two people can independently identify the same area. A dated map supported by a precise written description is generally more useful than a loose reference to a suburb. If using postcodes, explain how subsequent postcode changes will be handled.

Test the edges with practical examples. Who serves an apartment building on a boundary? What happens when a customer moves? Can a franchisee accept an unsolicited enquiry from outside the area? Resolve these questions before they become disagreements between neighbouring operators.

3. Allocate online orders and shared customers

A geographical territory does not automatically answer who receives an online enquiry. Your website, booking platform and telephone service need allocation rules that match the rights you promise.

Choose the relevant location for each transaction. For a mobile service, that might be the service address rather than the customer's billing address. For retail, distinguish delivery orders from purchases collected at a particular outlet.

Document how you will handle:

• Enquiries received through central channels.
• Customers who request a particular franchisee.
• National accounts covering several territories.
• Temporary overflow when the local franchisee lacks capacity.
• Complaints, refunds and repeat work involving more than one operator.

Specify who communicates with the customer, who fulfils the work and how revenue is allocated. Any related charges need to align with the agreement and required disclosures.

Avoid promising that every enquiry within a territory belongs to its franchisee if your technology cannot support that promise. Test routing rules before launch and keep records of exceptions. Shared visibility helps your franchising community distinguish an administrative mistake from a recurring allocation problem.

4. Put territorial rights through legal review

Australia's mandatory Franchising Code of Conduct, made under the Competition and Consumer Act 2010, regulates franchise relationships. The current Code commenced on 1 April 2025, with some obligations phased in later. The Australian Competition and Consumer Commission enforces it.

The Code's disclosure requirements cover territorial arrangements, including whether a franchise is exclusive or non-exclusive and relevant competition within its territory. Ensure the disclosure document, agreement, maps and sales explanations describe the same arrangement.

The Australian Consumer Law also prohibits misleading or deceptive conduct. Calling a territory “protected” while reserving broad competing sales rights can create risk if the overall impression is misleading. Applicable unfair contract terms protections also matter, particularly when considering unilateral boundary changes.

Ask your lawyer to review reserved rights, performance conditions, boundary adjustments and dispute procedures. Both parties must act in good faith; a contractual discretion is not a licence to disregard that obligation.

Practical takeaway: prepare a territory map, a rights summary and worked examples for online orders and boundary cases. Have your lawyer check that all three match your agreement and disclosure document before making territorial promises.