Franchise territory: what to assess before you buy

Buying a franchise does not mean you get an entire city to operate in. Within a franchise network, the relationship between outlets depends on territorial rules that may protect your investment or allow nearby competition. Before choosing a brand, establish exactly where you can operate, who else can serve the same customers and under what conditions that protection may change.

1. Distinguish between exclusivity, priority rights and no protection

Brazil’s Law No. 13,966/2019, the Franchise Law, requires the Franchise Disclosure Document (Circular de Oferta de Franquia, or COF) to set out the policy on territorial operations. Article 2, item XI, requires disclosure of:

• Whether exclusivity or priority rights apply to a particular territory, and on what conditions.
• Whether franchisees may sell or provide services outside their territory, or export.
• The rules governing territorial competition between company-owned and franchised outlets.

The law requires transparency but does not grant automatic exclusivity. A franchise without an exclusive territory is not unlawful for that reason alone. What matters is understanding the rules and assessing their financial impact before signing.

Exclusivity and priority rights are not equivalent. Depending on its scope, exclusivity may prevent certain competing operations within the agreed area. Priority rights may give you the first opportunity to take on a new outlet or business opportunity, without necessarily preventing another outlet from opening if you decline.

If priority rights apply, ask how the opportunity will be offered, how long you will have to respond and what financial and operational requirements you must meet. A right that depends on immediate additional investment may have little value if you intend to operate only one outlet.

2. Turn territorial promises into a verifiable map

Expressions such as “protected region” or “catchment area” are not enough to establish the extent of your rights. Ask for the territory to be clearly defined in the contract or in an appendix expressly incorporated into it.

The area may be defined by neighbourhoods, municipalities, postcodes (known as CEPs in Brazil), streets or a boundary drawn on a map. Whatever method is used, it must allow you to establish whether an address falls within the protected area. If the rule uses distance, clarify how this is measured: in a straight line, by road or using another criterion.

Also request the locations of existing company-owned and franchised outlets, and ask about any new operations already planned nearby. This helps identify overlaps before you make any commitments.

In particular, check:

• Whether shopping centres, airports and other special locations are excluded from the protection.
• Whether kiosks, pop-up shops or other formats operating under the same brand may open in the area.
• Whether relocating requires fresh territorial approval.
• Whether the franchisor can change the boundaries, and on what grounds.

A large territory does not guarantee sufficient demand. Assess the map against footfall, accessibility, customer profiles and local competitors. Contractual protection and commercial potential are separate considerations, and both need to make sense.

3. Clarify who serves customers through digital channels

Protection for a physical shop does not, on its own, settle how sales through the brand’s website, apps, third-party platforms or remote services are handled. Do not assume that every purchase made by someone living in your area will be allocated to your outlet.

Put specific scenarios to the franchisor: a customer in your neighbourhood buys through the website; another outlet advertises delivery to your postcode; a company with branches in several cities requests a centralised service. Ask who makes the sale, who provides the service and who receives the revenue in each case.

Request written clarification on:

• How sales leads received through the brand’s channels are allocated.
• How delivery areas and areas for services at customers’ premises are defined.
• Whether digital advertising may target another outlet’s territory.
• How corporate accounts and customers served nationwide are handled.
• Whether an outlet is paid for delivering, installing or servicing a sale made through another channel.

These questions translate territorial policy into day-to-day operating procedures. If the financial projections assume local digital revenue but the contract does not guarantee that it will be allocated to your outlet, treat that revenue as uncertain, not assured.

4. Check the conditions for retaining protection

Exclusivity may depend on targets, service coverage or other obligations. Identify any conditions and whether they are measurable. Ask how performance will be assessed, when reviews will take place and whether there is a process for remedying a breach before protection is lost.

Also assess how disputes are handled: who receives complaints, what records must be submitted and how the franchisor intervenes when another outlet crosses the agreed boundaries. Do not assume compensation is automatic; the consequences and available remedies require contractual and legal review.

Compare the COF, the territory map and the draft contract with a lawyer familiar with franchising in Brazil. The COF must be provided at least ten days before you sign the contract or preliminary agreement, or pay any fee to the franchisor or a person or company connected to it. This is a minimum advance disclosure period, not a deadline for completing your assessment.

Practical conclusion: before buying, obtain written answers confirming where you may operate, who may compete in the same area and what could change your protection. If any answer rests solely on a verbal promise, your territorial assessment is not yet complete.