Buying a Franchise: How to Check Territorial Protection

Anyone joining a franchise network wants to know how much competition they may face locally from within that network. But an attractive catchment area is not the same as a protected contractual territory. What matters is what the contract promises, which sales channels are excluded and whether protection is subject to conditions. Check these points before signing or making binding commitments to invest in a location.

1. Distinguish between catchment area and territorial protection

Your catchment area describes where your potential customers come from. It is a commercial assessment. Territorial protection, by contrast, is a contractual commitment to restrict certain activities by the franchisor or other franchisees within a defined area.

Approval of a location therefore does not automatically mean exclusivity. Nor do phrases such as “your market area” or “preferred local partner” tell you much, on their own, about whether another outlet in the network can open next door.

Ask for specific answers to these questions:

• Can the franchisor open its own outlets in the territory?
• Can it appoint other franchisees there?
• Does the protection also cover affiliated companies and other retail or service formats?
• Does it cover mobile services, sales stands or temporary retail spaces?
• Is only your location protected, or a defined geographical area?

When choosing a brand, look beyond whether territorial protection is offered and assess its practical value for your business model. A delivery service needs different boundaries from a shop that relies mainly on passing trade.

2. Understand the German legal framework

Germany has no specific franchise legislation, no government franchise register and no legally prescribed standard disclosure document. Joining a franchise network does not, in itself, give you a right to an exclusive territory. Your position depends on the rights agreed in the contract and the general limits imposed by law.

Pre-contractual disclosure duties arise in particular under sections 311(2) and 241(2) of the German Civil Code (BGB), alongside the principle of good faith under section 242 BGB. Information material to your decision must be accurate. Known expansion plans may need to be disclosed if they conflict with promised exclusivity or materially alter its commercial significance. The precise scope of this duty depends on the circumstances.

There is no general statutory franchise waiting period of exactly 14 days. However, you should be given enough time to have key information and contractual documents reviewed by qualified advisers.

Standard-form contractual terms are also subject to review under sections 305 onwards of the BGB, with special rules applying to business-to-business dealings. Territorial and customer restrictions are governed by section 1 of the German Competition Act (GWB) and, where applicable, Article 101 of the Treaty on the Functioning of the European Union (TFEU). The EU Vertical Block Exemption Regulation (EU) 2022/720 can exempt certain agreements if its conditions are met. A blanket ban on all sales by other franchisees into your territory is therefore not something the parties can simply agree without legal constraints.

3. Put boundaries and exceptions in writing

Ask for a schedule to the contract that clearly maps or describes the protected territory. A simple distance from the premises leaves questions unanswered: is it measured as the crow flies or by road? What is the starting point? What happens if you relocate?

Practical options include clearly identified postcode areas or a dated map with readily identifiable boundaries. If postcodes are used, the contract should explain how subsequent changes will be handled. The written description and the map must not contradict each other.

Exceptions deserve as much attention as the promise of protection. They often cover railway stations, airports, shopping centres, major accounts or existing outlets. Request a specific list of existing and planned exceptions insofar as they are material to your decision.

Also check whether protection is tied to opening deadlines, minimum performance requirements or the development of additional locations. Record how compliance will be measured and what happens if you fall short. Protection that disappears immediately because of vaguely defined performance problems is difficult to rely on when planning your business.

4. Check online sales and customer allocation separately

A protected territory for your shop does not automatically protect you against orders placed through the network’s central online shop. Clarify separately who may sell online and how orders, customer enquiries and revenue are allocated.

For example, a customer in your territory orders through the network’s app, but another franchisee makes the delivery. Without clear rules, it remains uncertain whether you receive a share of the revenue or merely fund local brand awareness.

Ask specifically about:

• how centrally received enquiries are allocated;
• delivery areas and collection orders;
• payment for services provided locally;
• centrally managed corporate accounts;
• geographically targeted online advertising by other franchisees.

Competition law distinguishes between active customer targeting and passive sales, such as those made in response to unsolicited customer enquiries. A generally accessible online shop is, in principle, treated as a form of passive selling. A specialist legal adviser should assess which restrictions are permissible. Territorial protection must not be confused with complete insulation from competition.

5. Make commitments verifiable and enforceable

Compare the draft contract with presentations, emails and meeting notes. Have important commitments expressly incorporated into the contract. Keep dated copies of territorial documents and the answers to your questions.

Where possible, agree a procedure for proposed new locations and disputes: who informs whom, when must an objection receive a response, and what remedy is available? Ask existing franchisees how overlaps are resolved in practice. Their experience complements a legal review of the contract but does not replace it.

Incorrect pre-contractual information may give rise to claims for damages if the relevant legal requirements are met. Breaches of contract may give rise to further claims. Do not, however, reduce fees unilaterally; seek legal advice on the steps available to you.

Practical takeaway: Only invest once the territory, exceptions, digital sales channels and conditions of protection are clearly documented in writing. A precise commitment is worth more than a general promise that you will be the exclusive local partner.