Franchising in Canada: checking territorial exclusivity

A territory described as ‘exclusive’ guarantees neither freedom from competition nor access to all the brand’s local sales. Before joining a franchise network in Canada, check exactly what you will be entitled to operate, where and under what conditions. This will help you compare the sales pitch with the rights the contract actually grants.

1. Define what the territory actually protects

Start by distinguishing between three things: your approved location, the area in which you may seek customers and the territory where the franchisor agrees to restrict certain competing outlets. These rights do not necessarily overlap.

A contract may allow you to operate at a specific address without preventing another outlet from opening nearby. Conversely, territorial protection may prohibit new franchised outlets while allowing the franchisor to open its own company-owned branches.

Ask for written, verifiable boundaries, ideally supported by a map attached to the contract. If the territory is defined by postcodes, municipal boundaries or a radius, ask for clarification on how it is measured and how future changes will be handled. Wording such as ‘the local market’ leaves too much room for interpretation.

Key questions to ask include:

• Does the protection cover other franchisees, company-owned branches and the franchisor’s related companies?
• Does it cover only this brand, or also other brands controlled by the same group?
• May I serve customers outside my area?
• Can the franchisor redraw the territory, and how much notice must it give?

What matters is not simply an explanation from the representative, but a contractual provision that is consistent with the map and the appendices.

2. Identify sales channels excluded from exclusivity

Competition within the same brand does not arise solely from a shop opening nearby. Online orders, apps, delivery platforms and national contracts can generate sales in your area without those sales coming to you.

Create a simple table showing, for each channel, who receives the order, who fulfils it, who takes payment and who bears the costs. Pay particular attention to the following situations:

• An order placed on the national website by a customer in your territory.
• A delivery made into your area from another outlet.
• A contract signed by head office with a business that has several local addresses.
• A counter within a grocery shop, on a campus or at another reserved location.

Exclusivity over outlets does not necessarily mean exclusivity over sales. If you must fulfil orders secured by the franchisor, check how you will be paid, which fees apply, how refunds are handled and whether you can access the data needed to provide customer service.

Also ask how disputes over order allocation are resolved. A written procedure, with a named contact and a response deadline, is more useful than a general assurance that franchisees ‘sort things out among themselves’.

3. Assess the conditions for retaining protection

Some protections depend on meeting sales targets, following an opening schedule or fulfilling other commitments. The risk is therefore not just that you receive a small territory, but that you lose important protection after investing.

For each condition, note the threshold you must meet, the assessment period, any exclusions and the consequences of falling short. Ask whether a forced closure, supply disruption or delay in obtaining approval can be taken into account.

Then check the procedures for putting things right: will you receive written notice, have time to remedy the problem and be able to challenge the calculation? Will protection be restored if the issue is resolved?

With your accountant, model the impact of a new outlet opening nearby or orders shifting to the national online sales channel. The aim is not to predict lost sales precisely, but to assess how dependent your business is on the promised protection.

Finally, examine the renewal terms: will you retain the same territory, or will you have to accept the terms the franchisor offers at that time? Do not assume that a right granted today will automatically be renewed.

4. Have your rights checked under provincial law

In Canada, territorial protection depends primarily on the contract; there is no general federal right to an exclusive territory for franchisees.

Some provinces do, however, have specific legal requirements. In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 provides, among other things, for pre-contractual disclosure and a duty of fair dealing in the performance and enforcement of the contract. That duty includes good faith and compliance with reasonable commercial standards. It does not, however, replace a clearly drafted territorial clause.

In Quebec, no franchise-specific legislation imposes an equivalent disclosure regime. The Civil Code of Québec applies, including its rules on good faith and contractual obligations. The interpretation of the commitments made and the circumstances can therefore be crucial.

Ask an independent lawyer to check the rules applicable in the province where you plan to operate. Have them compare the commercial promises, the map, the contract and the rights reserved by the franchisor. Any essential clarification should be incorporated into the contractual documents before you sign.

Key takeaway: before buying, obtain written answers to three questions: who may sell in your territory, through which channels, and in what circumstances can your protection change?