Franchising your business: defining territories

Before offering franchises in your business, decide exactly where each partner will be able to operate and what rights you will reserve for them. A rough map or a promise of ‘local exclusivity’ can create disputes as soon as a second outlet opens. To build a lasting franchise network, territories need to be based on commercial data, explicit commitments and a contract that complies with competition law.

1. Draw up a commercially coherent area

Do not start by dividing France into its administrative departments. Start with your existing business: where do your customers come from, how far do they travel, where do you deliver, and which journeys remain profitable? A home services business and a shop that customers make a special trip to visit have very different catchment areas.

Analyse aggregated customer address data, travel times, physical barriers, the density of potential customers and local competition. Distinguish between results observed at your existing premises and assumptions used for a new location. The business owner’s personal reputation, in particular, may make those results difficult to replicate elsewhere.

Prepare a fact sheet for each proposed territory, including:

• a dated map with verifiable boundaries;
• the municipalities, postcodes or streets covered;
• the main characteristics of demand;
• existing locations and those already planned;
• uncertainties to investigate before allocating the territory.

A postcode may cover too large an area, and postcode boundaries can change. Set out which takes precedence if the list and the map differ. Above all, never present a territory as a guarantee of turnover: its potential is no substitute for local market research or the franchisee’s sales efforts.

2. Define what exclusivity actually protects

Territorial exclusivity is not automatic in franchising. If you grant it, its scope depends on the commitments you make. Reserving the right to open premises under the brand does not necessarily mean reserving every sale to residents of the area.

Before having the legal terms drafted, describe each of the following situations separately:

• Locations: can you open a company-owned outlet or authorise another franchisee to operate within the area?
• Prospecting: what targeted sales activity is permitted outside the territory?
• Distance sales: how are orders placed through the brand’s website handled?
• National accounts: who negotiates, delivers and invoices services provided across multiple sites?
• Special formats: does the protection cover concessions, temporary outlets or other formats?

Any exclusions must be clear from the outset of commercial discussions. Verbally promising an ‘exclusive town’, then excluding several sales channels in the contract, undermines trust.

Also establish a procedure for enquiries that span two territories: who is responsible, how work is allocated, any payment for services provided, and how disagreements are resolved. These rules must remain compatible with the commercial freedom of independent business owners.

3. Have the legal limits checked in France

France has no single statutory framework governing every aspect of a franchise agreement. Such agreements are subject, among other things, to general contract law, intellectual property law and competition law. Specific rules do, however, govern pre-contractual disclosure.

Article L. 330-3 of the French Commercial Code, introduced by the legislation known as the Doubin Law, applies where a party makes a trade name, trade mark or trading identity available while requiring exclusive or near-exclusive business activity. In that case, the pre-contractual disclosure document and draft agreement must be supplied at least twenty days before signing or, where applicable, before payment of any sum required in advance. Article R. 330-1 specifies, among other things, the information to be provided about the scope of exclusivity arrangements. This exclusivity of business activity is distinct from territorial protection.

Commercial restrictions must also comply with Article 101 of the Treaty on the Functioning of the European Union and French competition law. The relevant European block exemption regulation for vertical agreements is Regulation (EU) 2022/720, which replaced Regulation 330/2010.

In practice, distinguish between active sales, resulting from targeted prospecting, and passive sales, made in response to unsolicited enquiries. Some restrictions on active sales may be permitted subject to conditions; restrictions on passive sales are generally prohibited, apart from specific exceptions. A blanket ban on online selling is also a warning sign. Have each clause reviewed by a specialist legal adviser rather than copying an old agreement.

4. Plan for change without withdrawing the protection promised

A territory that works well at launch may become difficult to cover. Set out from the start how a possible second location, an expansion or a negotiated boundary change would be handled.

If continued exclusivity depends on meeting targets, define measurable criteria, deadlines, the supporting evidence required and the consequences of falling short. Avoid giving yourself discretionary powers to redraw territories. Any change must comply with the agreement and, where necessary, be formalised in a written amendment.

Before allocating any new territory, check the commitments already made and retain the signed version of each map. A territory register shared by those responsible for network development and franchisee support helps prevent contradictory promises.

Key takeaway: prepare a precise map and a list of protections and exceptions, then have the whole package legally reviewed before offering the territory to a prospective franchisee.