Territorial exclusivity in franchising: how to agree terms in Colombia

When franchising an existing business, promising an exclusive territory may seem like a simple way to attract prospective franchisees. However, that promise can restrict future openings and lead to disagreements over deliveries, online sales or corporate customers. To build a franchise network with clear rules, define exactly what is protected, against whom and under what conditions before offering the territory.

1. Distinguish an authorised territory from an exclusive territory

An authorised territory specifies where the franchisee may operate. Exclusivity adds a specific commitment: for example, that the franchisor will not open company-owned outlets or grant other franchises of the same format within that area. Defining geographical boundaries does not, in itself, grant exclusivity.

Before drafting the offer, the business owner must decide what they are willing to grant. They may authorise an outlet without exclusivity, protect an area against new openings or reserve certain commercial opportunities. Each option requires a different description.

It is worth separating three issues:

• Outlet location: the place from which services are provided or products sold.
• Protection against new openings: which additional outlets are prohibited and which are permitted.
• Serving customers: how customers, orders or deliveries crossing territorial boundaries are handled.

Do not describe an area as “fully exclusive” if you intend to retain direct sales or alternative formats within it. These exceptions must be explained before the contract is signed, not after a complaint is received.

2. Define the area using verifiable criteria

Expressions such as “the north of the city” or “the outlet’s catchment area” leave too much room for interpretation. Use an annex containing a map and a written description based on identifiable boundaries. Specify which takes precedence if the two differ.

If you choose a radius, specify its centre point and how it is measured. If you use neighbourhoods or administrative divisions, identify the boundaries used as a reference and what will happen if they change. It is also worth clarifying how shopping centres, airports and other locations that could accommodate different formats will be treated.

The size of the territory should reflect the actual capacity to serve it. Review where the existing business’s customers come from, journey times, physical barriers and delivery capacity. These data can inform your decision; they do not guarantee future demand.

For example, a major road may separate two areas that look close on a map but are difficult to connect for a delivery service. Granting both without checking coverage could block opportunities without improving service.

Also document company-owned outlets and rights already granted. Do not offer a territory that overlaps with earlier commitments.

3. Resolve overlaps between channels before selling

A commercial boundary does not prevent a customer from shopping online or visiting another outlet. The territorial clause must therefore reflect how the business actually operates, not just where its premises are located.

Prepare a simple matrix identifying, for each channel, who receives the order, who fulfils it and how the sale is allocated where relevant. Include:

• Purchases through the brand’s website for delivery within the territory.
• Orders through delivery platforms.
• Collections from an outlet other than the nearest one.
• Corporate contracts requiring service across several cities.
• Trade fairs, temporary events and special sales outlets.

If head office retains certain customers or channels, identify them using objective criteria. Avoid reservations so broad that they render the promised exclusivity meaningless.

Where protection depends on performance, agree verifiable indicators, assessment periods and a procedure for notifying and remedying failures to meet the agreed requirements. Do not turn an ambiguous sales target into an unrestricted right to reduce the territory.

4. Align the agreement with Colombia’s legal framework

In Colombia, a franchise agreement is an atypical contract, meaning it is not governed by a specific, comprehensive statutory framework. It is governed by the agreed terms and the applicable general rules, principally the Commercial Code and, where relevant, the Civil Code. Good faith must guide both negotiations and performance of the contract.

Territorial exclusivity may be agreed, but it remains subject to competition law. Its structure should be reviewed under Law 155 of 1959, Decree 2153 of 1992 and Law 1340 of 2009, as applicable. Law 256 of 1996 is also relevant to unfair competition practices. Exclusivity is not automatically unlawful: its scope, context and effects matter.

Before signing, have a legal adviser review the clause, map, exceptions and conditions for amendment together. Check that the sales presentation does not promise more protection than the contract provides.

In practice: do not offer an exclusive territory until you can explain its boundaries, reserved channels and both parties’ obligations in a single summary sheet consistent with the contract.