Buying a franchise: check territorial protection and online sales terms

When you join a franchise network, you buy the right to use its business concept, but not automatically exclusive access to local customers. Another outlet, the network’s online shop or a new delivery service may serve the same area. It is therefore worth reviewing territorial protection as a distinct part of the agreement before signing. What matters is not whether you are promised “your own territory”, but which rights, exceptions and obligations are attached to that promise in writing.

1. Establish what your own territory means

Territorial protection may mean, for example, that the franchisor will neither open its own outlet within a specified area nor grant another franchise there. It does not necessarily restrict online sales, sales to business customers or deliveries by other franchisees to customers in the area. An approved location for your outlet is also different from exclusive rights to a territory.

Ask for a map or another unambiguous definition of the territory to be attached to the agreement. Naming a municipality may work, but changes to municipal boundaries, new residential developments and shopping centres can raise questions of interpretation. If the boundaries are based on postcodes, the agreement should specify how any postcode changes will be handled.

Check at least the following:

• Does territorial protection restrict both the franchisor’s own operations and its right to approve new franchisees?
• Does it cover all products and services within the concept, or only some of them?
• Are there exceptions for company-owned shops, temporary sales outlets or major accounts?
• Can the network operate in the area under another brand or a parallel business concept?
• Can the territory change during the contract term, and on what grounds?

Also distinguish between the network’s current plans and a binding commitment. A statement that no new outlets are planned is not equivalent to a contractual term restricting future openings. If no territorial protection is offered, assess the purchase on that basis.

2. Agree responsibilities for online sales and customer referrals

Online sales can strengthen the whole franchise network, but you need to understand in advance how the benefits and costs are shared. A customer might see your local advertisement, order from the network’s online shop and collect the product from your outlet. Without clear terms, you could end up providing the service without receiving the corresponding sales revenue.

Walk through a typical order with the franchisor from start to finish. Who contracts with the customer? Who receives the payment? Who hands over the product, handles complaints and pays the costs of returns? Also establish who is responsible for stock and for any incorrect availability information displayed online.

Ask for a written explanation of at least the following:

• How are online orders and enquiries allocated to franchisees?
• Is the franchisee paid for collection, delivery, installation or handling returns?
• Are online sales included in the calculation of ongoing franchise fees, and whose sales are they recorded as?
• Who funds discounts and is responsible for delivering national campaigns?
• Can the franchisor unilaterally change the rules for allocating orders?

Do not leave customer referrals solely to an operational manual that can change if they have a significant effect on your outlet’s revenue. Agree which key terms belong in the contract itself and how changes will be communicated. Rights to use customer data must also be assessed under data protection rules: a customer’s location within your territory does not automatically give you unrestricted rights to use their data.

3. Understand the limits imposed by Finnish law

Finland has no specific franchising act, mandatory registration system for franchise agreements or statutory franchise disclosure document. Territorial protection does not arise automatically under legislation. Its scope is determined primarily by the agreement, subject to mandatory legal requirements.

The relationship is governed by legislation including Finland’s Contracts Act, Unfair Business Practices Act, Competition Act and Trademarks Act. Under the Contracts Act, an unreasonable contractual term may be adjusted or set aside. However, you should not rely on this possibility when planning your purchase: challenging a business-to-business agreement after the event can be burdensome, and the outcome uncertain.

EU competition rules are also central to terms governing territories and sales channels. The Vertical Block Exemption Regulation (EU) 2022/720 sets out the conditions under which certain agreements between businesses may qualify for an exemption from the prohibition on anti-competitive agreements. It does not give you an unrestricted right to exclude all other sellers from your territory.

Competition law distinguishes between active sales, such as targeting customers in a particular territory, and passive sales, such as responding to an unsolicited customer enquiry. Different rules apply to restrictions on each. Terms that prevent the effective use of the internet for sales may also be problematic. Have any extensive territorial and online sales restrictions drafted by a lawyer with competition law expertise.

Franchising codes of ethics are self-regulatory standards, not Finnish legislation. Find out whether the network has committed to them and how that commitment is reflected in the agreement. They are no substitute for a precise territorial protection clause.

4. Test the terms before deciding to buy

Test the draft agreement against specific scenarios. What happens if a large shopping centre opens in your territory? What if the network launches home delivery, designates a national business account or opens a new outlet just outside your boundary? Ask for answers that refer to contractual provisions, rather than general assurances that the relationship will work well.

If territorial protection depends on a sales target, check how the target is calculated and over what assessment period. Establish whether supply disruptions within the network or the impact of its own sales channels will be taken into account. Negotiate a requirement for written notice and a reasonable period to remedy any shortfall before protection is reduced. Giving the franchisor unfettered discretion to assess your performance makes that protection difficult to rely on.

Also agree a procedure for breaches: who must be notified, how the matter will be investigated and what corrective action can be required. With professional advice, check whether the agreement’s limitations of liability undermine the practical value of territorial protection.

Practical takeaway: do not pay for assumed exclusivity. Before committing, obtain written confirmation of the territorial boundaries, exceptions for sales channels and rules for changes, as well as how your rights can be enforced in practice.