Franchising: defining clear territorial exclusivity

Turning your business into a franchise means deciding where each partner can operate and what protection they will receive. Poorly defined territorial exclusivity can hold back network growth or create unrealistic expectations. To build a sustainable franchise network, define the franchisor’s commitments precisely before offering the first territory.

1. Decide what exclusivity actually protects

Territorial exclusivity is not automatic in franchising. It arises from the contract. You therefore need to distinguish between several possible commitments, which do not all have the same effect.

Exclusive rights to establish outlets may prevent the franchisor from opening a branded outlet within the allocated area, either directly or through another franchisee. This does not necessarily mean that all sales to residents of that area belong to the local partner.

Before drafting the agreement, examine each sales channel:

• franchised and company-owned outlets;
• pop-up shops and concessions within a partner’s premises;
• the brand’s online shop and any platforms it uses;
• sales to businesses or customers with multiple sites;
• services provided in customers’ homes and deliveries.

For each channel, record what the franchisor is allowed to do, which rights it retains and what it is prohibited from doing. Avoid a general phrase such as ‘exclusive territory’ if you intend to retain certain channels. Exceptions must be clear before any commitment is made, rather than discovered when a new outlet opens.

2. Draw boundaries that work in practice

A territory must be identifiable without relying on commercial judgement. A map alone may lack precision; a list of municipalities alone may become ambiguous following an administrative change. Combine a dated map with a written definition, and specify which takes precedence if they differ.

Depending on your business, use municipalities, geographical codes or street boundaries. If you choose a radius around an outlet, specify its starting point and how it is measured. Distance as the crow flies is not the same as distance by road.

Do not confuse the contractual territory with the catchment area. The former establishes rights and obligations; the latter describes where customers are likely to come from. Customers may come from outside the territory, and a contractual area does not guarantee any level of turnover.

Test your boundaries against a few practical scenarios: a shop on the edge of the area, a delivery to a neighbouring municipality, or a business customer whose head office and service location are in different places. These tests reveal ambiguities before they become disputes between network members.

Finally, keep a central register of the territories granted, their exceptions and how long the rights apply. Check it before proposing any new outlet location.

3. Comply with pre-contractual disclosure and competition rules

In France, franchising is not governed by a single dedicated legal framework. It relies in particular on general contract law and competition law. Pre-contractual disclosure is governed by the Doubin Law of 31 December 1989, now incorporated into Article L. 330-3 of the French Commercial Code and supplemented by Article R. 330-1.

Where the conditions for these rules are met — making a trade name, trademark or trading identity available in return for an exclusive or near-exclusive commitment in relation to the business activity — the pre-contractual disclosure document and draft agreement must be provided at least twenty days before signing or making the relevant advance payment. The scope of the exclusivity arrangements must be disclosed. This obligation therefore does not depend solely on whether an exclusive territory is granted.

Territorial protection must also comply with French and EU competition rules, including EU Regulation 2022/720 on vertical agreements. A distinction must be made between active sales, resulting from targeted sales efforts, and passive sales, made in response to unsolicited enquiries.

Some restrictions on active sales may be permitted subject to conditions. However, a blanket ban on serving customers outside the area is generally problematic. Nor does exclusivity allow you to prevent the effective use of the internet to sell. Have the clauses reviewed in light of your sales arrangements, rather than copying an outright prohibition.

4. Plan for change without going back on a promise

The agreement must address events that could affect the territory: relocation of an outlet, an additional opening, changes to administrative boundaries or the development of a new sales channel.

Avoid reserving a vaguely defined power to reduce the territory. Specify the circumstances concerned, the discussions required and the arrangements for any amendment to the agreement. If protection depends on targets, these must be precise and verifiable, with clearly explained consequences, all subject to legal review.

Also designate a contact for boundary questions and establish a procedure for reporting proposed outlets that may conflict with existing rights. This will allow the franchisor to check the facts and its commitments before responding.

Key takeaway: before offering a territory, prepare a precise map, a list of the channels covered and explicit exceptions. Then have these checked for consistency with the agreement, pre-contractual disclosure requirements and competition law.