Franchising in Canada: checking territorial exclusivity

A brand offers you a territory that looks promising. Does that mean no other outlet in the network can sell there? Not necessarily. In Canadian franchising, territorial protection depends on the contract, its exceptions and the applicable provincial rules, among other factors. Before investing, check exactly which rights are reserved for you, whose competing activities you are protected against and how long that protection lasts.

1. Distinguish between an allocated territory and an exclusive territory

A territory may simply define the area in which you are allowed to operate your business or seek customers. On its own, it does not guarantee that the franchisor will refrain from opening another outlet there or serving customers directly.

Start by identifying the franchisor’s exact commitments. Does the contract only prohibit another franchise from opening under the same brand? Does it also cover outlets operated by the franchisor, its affiliated companies or another brand it controls?

Next, ask for clearly defined boundaries that you can verify: an attached map, streets, municipalities, postcodes or a radius measured from a specific address. If the contract uses several descriptions, have it specify which takes precedence if they differ.

Your first check should answer three questions:

• Where can you operate and seek customers?
• Which activities does the franchisor undertake not to allow in that area?
• Which activities remain permitted despite this protection?

An area drawn on a sales presentation is no substitute for a consistent contractual schedule. Also clarify what happens to the territory if your outlet has to relocate.

2. Examine the exceptions, especially distance selling

Exclusivity may be limited to a particular outlet format. A contract might, for example, protect your conventional restaurant while reserving the franchisor’s right to open counters in certain types of location. Examine these exceptions before assigning an economic value to the territory.

Review the channels that could reach your customers: the brand’s online shop, mobile app, delivery platforms, business-to-business sales, national accounts and temporary outlets. Do not assume that the customer’s address automatically determines who gets the sale.

Ask for specific answers:

• Who receives an online order for delivery within your territory?
• Can a neighbouring outlet make deliveries there?
• Who handles sales enquiries submitted through the brand’s website?
• Does a direct sale by the franchisor entitle you to payment?
• Who handles after-sales service and returns?

Have these rules tested against a few realistic scenarios. An order placed within your area, prepared elsewhere and then delivered to your customer may reveal an ambiguity that the word ‘exclusive’ can easily obscure.

3. Check disclosure requirements and provincial law

In Canada, franchise-specific obligations vary by province. A disclosure requirement is not a guarantee of exclusivity: it helps you understand the terms of the offer, but does not automatically create a protected territory.

In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 generally requires a disclosure document to be provided at least 14 days before a franchise-related agreement is signed or a payment is made, subject to statutory exceptions. Among other things, this document must describe any exclusive territory and include the proposed contracts.

Compare that description with the agreement and its schedules. If the disclosure document describes protection that the contract limits, ask your lawyer to have the discrepancy clarified before you commit. Misleading or deficient disclosure may give rise to legal remedies, but their availability depends on the facts and the law.

In Quebec, there is no specific franchise disclosure legislation. The general rules of the Civil Code of Québec, including those concerning good faith and contractual obligations, apply. The absence of a specific regime therefore does not release the parties from their general obligations, but it makes checking the rights actually granted particularly important.

4. Assess the duration and value of the protection

Check whether exclusivity lasts for the full term of the contract. Can it be reduced because of performance levels, population changes or a decision by the franchisor? If changes are possible, ask which criteria, notice periods and opportunities to remedy shortcomings apply.

Then, with your accountant, compare two scenarios: operating with the full benefit of the advertised protection, and operating while exposed to competing sales allowed under the exceptions. The aim is not to predict every lost sale, but to check whether your business remains viable without overestimating the value of exclusivity.

Keep a summary sheet bringing together the map, protected activities, exceptions and conditions for changes. Have your lawyer check it against the final documents.

Key takeaway: before buying, insist on a clear answer to this question: who can sell what, to which customers, within your territory? Meaningful exclusivity is measured by specific commitments, not by its label.