Buying a franchise: defining territorial exclusivity

A franchise brand offers you an ‘exclusive territory’: this does not necessarily mean that every sale made within that area will be yours. In franchising, territorial protection depends on how the contract is drafted. Before buying a franchise in France, you therefore need to understand exactly who can open premises, approach customers and sell in your area, through which channels and under what conditions.

1. Distinguish contractual protection from legal requirements

In France, territorial exclusivity is not an automatic right for franchisees. It must stem from a commitment by the franchisor. A contract may, for example, protect you against another outlet opening under the same brand without reserving all nearby customers for your business.

The pre-contractual framework is based in particular on Article L. 330-3 of the French Commercial Code, introduced by the Doubin Law of 31 December 1989, and Article R. 330-1. Where the statutory conditions are met — the right to use a trade name, trade mark or brand is granted alongside an exclusivity or near-exclusivity commitment for the business activity — the franchisor must provide a pre-contractual disclosure document, known as the DIP, and the draft contract at least twenty days before the contract is signed or any advance payment is made.

This disclosure requirement does not create territorial exclusivity. The DIP must specify, among other things, the scope of any exclusivity arrangements, but it is the extent of the contractual commitment that you need to examine. Compare the sales presentations, the DIP, the contract and its schedules. An oral promise of a ‘reserved territory’ is no substitute for a precise clause.

2. Have the territory clearly mapped out

Ask for a map to be attached to the contract, together with a description that clearly identifies the territory’s boundaries. A list of municipalities, postcodes or street boundaries can be useful, provided they do not contradict one another. If several documents describe the area, have the contract specify which takes precedence.

Terms such as ‘urban area’, ‘customer catchment area’ or ‘radius around the shop’ need clarification. For a radius, what is the starting point? Is the distance measured as the crow flies or by road? An unclear boundary can become problematic when another outlet is proposed.

Next, check what the franchisor actually undertakes not to do:

• open a company-owned outlet;
• allow another franchisee to open premises;
• distribute the same products through a reseller or another retail format;
• operate a temporary outlet, kiosk or concession within another business.

Do not assume that all these situations are covered. Also ask for existing outlets and announced openings along the edge of your territory to be identified. The aim is not to eliminate all competition, but to understand the limits of the protection promised by the brand.

3. Clarify online sales and reserved customers

Exclusivity over physical premises does not necessarily cover distance sales. The brand’s national website may deliver to customers in your territory, while another franchisee may receive unsolicited enquiries from the same area.

Ask for written answers to a few practical scenarios: a local customer orders through the brand’s website; a business requests a service across several towns or cities; a purchase is collected from your shop and then returned elsewhere. Who invoices the customer, who provides the service and who bears the costs? Will you be paid if you carry out work relating to a sale for which another party has received payment?

Also examine any exceptions for key accounts, platforms and nationwide contracts. An overly broad clause reserving certain customers can significantly reduce the commercial value of the territory.

Territorial protection must comply with competition law. French and EU rules distinguish, in particular, between active sales, resulting from targeted approaches to a territory or customer group, and passive sales, made in response to unsolicited requests. Not all restrictions are permitted. Have a lawyer review the clauses rather than demanding a blanket ban on all sales into your territory by outside sellers.

4. Check whether the protection can change

An exclusive territory may come with conditions, such as opening within a set period, achieving a certain level of business activity or developing several outlets. Identify what happens if a target is missed. Can the franchisor reduce the territory, remove exclusivity or authorise a new outlet?

Ask for measurable criteria, a notification procedure and, where negotiable, a period in which to remedy the situation. Avoid allowing a significant change to depend solely on a vague assessment that the territory’s ‘potential has not been sufficiently exploited’.

Finally, check how to report an outlet opened in breach of the contract and what remedies you can seek. Keep the signed map, the schedules and any correspondence clarifying the exceptions.

Key takeaway: before signing, have your protection summarised on one page: the territory, activities covered, relevant sales channels, exceptions and conditions for retaining exclusivity. Every material point must be reflected in the contractual documents.