Buying a franchise: clarify your exclusive territorial rights

When you join a franchise network, the local area is often an important part of your decision. But the right to open at a particular address does not necessarily mean the network will keep other outlets away. Before signing, you need to know exactly what territorial protection you will receive, which sales channels it covers and how it can change.

1. Distinguish between an address and a protected territory

A franchise agreement may give you the right to operate one shop without granting you exclusivity in the area. It may also protect you against other franchisees while allowing the franchisor to open company-owned shops nearby. The word ‘exclusivity’ is therefore not enough on its own.

Ask for a geographical schedule to the agreement, defining the territory with a map and clear boundaries. If the agreement uses postcodes or municipal boundaries, it should explain what happens if these change. Descriptions such as ‘the natural catchment area’ or ‘the town centre’ can easily lead to disputes.

Then get answers to three separate questions:

• Who may establish a physical sales outlet in the territory?
• Who may target sales and marketing at customers in the territory?
• Who may serve customers from the territory when those customers make contact themselves?

The answers need not be the same. A ban on new shops, for example, does not automatically mean that all local customer enquiries will be passed to you. Within a franchise network, the boundaries should be clear to both new and existing members.

2. Check the exceptions and digital sales channels

Read the territorial clause alongside the exceptions in the agreement. The franchisor may have reserved the right to sell through an online shop, nationwide business contracts, pop-up shops or other distribution channels. These reservations can significantly narrow what appears to be strong exclusivity.

Ask for a consolidated overview of existing outlets, openings already agreed and known expansion plans that could affect your territory. Also ask whether other franchisees have rights to expand into the area. The aim is to uncover overlapping commitments before you invest.

Work through the customer journey across the network’s sales channels using practical examples:

• A local customer orders from the network’s website for home delivery.
• A customer orders online and collects from your shop.
• A nationwide business buys a service that you must deliver locally.
• A customer calls the network’s central telephone number and needs to be referred to an outlet.

Agree how enquiries and work will be allocated, and how you will be paid for local delivery, collection or service. Geographical exclusivity does not in itself entitle you to a share of the network’s online sales.

If allocation happens automatically based on the customer’s address, the method should be documented. Ask who can change it and how errors will be investigated and corrected.

3. Understand Denmark’s rules on territorial protection

Denmark has no specific franchise legislation, no dedicated registration scheme for franchise agreements and no statutory pre-contract franchise disclosure package. Nor do you automatically acquire a statutory exclusive right to a local territory simply by becoming a franchisee.

The Danish Contracts Act and general principles of contract law are central to your rights. Depending on the circumstances, general duties of good-faith disclosure may require material information to be provided before the agreement is entered into. The absence of a specific disclosure law is therefore not a licence to withhold crucial information about, for example, openings that are already planned.

Territorial protection must also comply with the Danish Competition Act and the relevant EU competition rules. The EU Vertical Block Exemption Regulation, Regulation 2022/720, is an important part of the assessment. Subject to certain conditions, it provides a framework for determining which restrictions may be exempt from the prohibition on anti-competitive agreements.

A key distinction is between active sales, such as targeted approaches to customers in a particular territory, and passive sales, where customers make contact on their own initiative. Restrictions on passive sales are generally particularly problematic. An absolute promise that no one else may sell to customers with an address in your territory should therefore be reviewed by a legal adviser.

Have an adviser with competition law experience check the specific clause. Broad wording does not necessarily provide stronger or lawful protection.

4. Agree how protection will be maintained

Check whether your exclusivity is subject to conditions and what happens if they are not met. It should be clear whether the franchisor can reduce the territory, remove the protection or establish another outlet.

Ask for a defined procedure for proposed changes: written reasons, relevant supporting documents, an opportunity to comment and an agreed notice period. If changes require your consent, this must be expressly stated.

Also clarify what happens if territorial protection is breached. Who should you contact, what information can you obtain and how must the franchisor put matters right? Any financial consequences should be considered and set out in the agreement rather than left for a future dispute.

Practical takeaway: Only sign once you can see your territory, the exceptions and the rules for changes on a single map and in one consolidated description. Do not buy into the word ‘exclusivity’ alone.