Buying a Franchise: Check Territorial Protection Before You Commit

When joining a franchise network, you need to know where your business is protected and which forms of competition within the network that protection covers. A shaded area on a location map is not enough. What matters is the obligations the franchisor actually accepts and the exceptions that apply. Before signing, assess territorial protection as a distinct part of your decision to buy.

1. Distinguish between an allocated territory and territorial protection

A contractual territory initially does no more than define the geographical area allocated to your business. It does not automatically prevent the franchisor from opening further outlets or appointing other franchisees there. Approval of a specific address is not a promise of exclusive rights either.

Territorial protection requires a clearly worded contractual obligation. Ask whether the protection covers only other franchised businesses or also outlets operated by the franchisor itself. It is equally important to establish whether affiliated companies, additional retail formats or special types of outlet are excluded.

Before signing the agreement, ask for answers to three key questions:

• What is the franchisor prohibited from doing within the territory?
• What sales rights may be granted to other franchisees there?
• Which activities remain expressly permitted despite the territorial protection?

Wording such as “The franchisee is allocated the territory to develop” does not reliably answer these questions. Have any verbal assurances about exclusivity included in the contractual documents. In a well-run franchise network, neighbouring franchisees should know their respective rights rather than later finding themselves in disputes over conflicting promises.

2. Document boundaries and existing exceptions

The protected territory should be defined by an unambiguous map, a complete list of postcodes or other clearly identifiable boundaries. If the map and the wording of the agreement differ, it must be clear which takes precedence. The schedule should be dated, clearly identified and form part of the agreement.

Pay particular attention to locations near the boundaries: does the territory include a shopping centre on the outskirts, a business park or a railway station? If protection is defined by a radius, establish whether this means distance as the crow flies or by road, and from which point it is measured. Subsequent changes to postcodes or municipal boundaries should not alter your rights without your knowledge either.

Also request an overview of existing network outlets and those already subject to binding commitments, insofar as they affect your protection. Existing sales rights held by other franchisees cannot simply be removed by making a new promise to you.

Practical check: Compare the contractual map, outlet development plans and exceptions side by side. Mark every area where rights overlap or remain unclear. These issues should be resolved before signing, not left until you are about to open.

3. Explicitly cover online sales and special sales channels

A ban on further physical outlets does not necessarily protect you from competition through other sales channels. For delivery businesses, mobile services or centrally allocated orders in particular, commercially important customer contact may take place outside a fixed outlet.

Work through each channel relevant to the franchise model:

• Central online shop: Who handles orders from your territory, and will you receive any payment for them?
• Delivery platforms and booking portals: What criteria are used to allocate orders?
• Mobile services: May other franchisees actively approach customers within your territory or provide services there?
• Key accounts and special locations: Are customers operating across regions, airports, railway stations or temporary retail spaces excluded?

For example, a protected outlet may be considerably less exclusive in commercial terms if head office sells the same services directly in that territory through its own booking portal. This is not necessarily prohibited, but you should know about it before committing and be able to factor it into your financial projections.

Do not demand a blanket promise that all customers in the territory may buy exclusively from you. Ring-fencing a market in this way can raise competition law concerns. What matters is having lawful, clearly defined protection and a transparent allocation of responsibilities.

4. Have the legal framework, conditions and consequences reviewed

Germany has no dedicated franchise statute and no franchise-specific state registration or approval procedure. Territorial protection arises primarily from the contractual agreement; there is no general statutory entitlement to an exclusive territory. Relevant legislation includes the German Civil Code (BGB), as well as German and EU competition law.

Standard contract terms are subject to review under sections 305–310 of the BGB, with particular rules applying to business-to-business contracts. Unclear terms or those that place one party at an unreasonable disadvantage may be invalid, notably under section 307 of the BGB. Restrictions on competition must also be assessed under the German Act against Restraints of Competition (GWB) and, where applicable, Article 101 of the Treaty on the Functioning of the European Union (TFEU) and the EU Vertical Block Exemption Regulation. One important distinction is between actively approaching customers and responding to unsolicited enquiries.

Also check whether your protection depends on minimum turnover, opening deadlines or additional outlets. Targets, assessment periods, opportunities to remedy shortfalls and the consequences of missing a target must be clear. Any broad right to reduce your territory unilaterally warrants particular scrutiny by a lawyer.

Finally, establish what remedies are available if the protection is breached and how they can be enforced. Agreed procedures for sharing information and consulting one another can help identify conflicts early.

Practical takeaway: Do not buy supposed territorial protection on the strength of verbal assurances. Insist on clearly defined boundaries, specific protection obligations and a complete list of exceptions. Have these documents, together with the sales rules, independently reviewed by a lawyer.