Territorial Protection in Franchising: Planning Fair Expansion

When expanding an existing business into a franchise network, you need to decide early on where future franchisees may operate and what freedom the franchisor will retain. Vague promises about territories can lead to conflict as soon as another outlet opens or online sales grow. This guide explains how to develop a clear territorial framework and make its limits transparent before signing the first agreement.

1. First, define what territorial protection means

Terrorial protection is not a standard package of rights. A promise not to open another franchised outlet within a particular area does not automatically mean that customers there cannot buy through a central online shop. Nor does it necessarily give the franchisee a right to every enquiry from that territory.

Separate these three questions:

• Location protection: May the franchisor open company-owned outlets or allow additional franchised locations within the agreed territory?
• Customer acquisition: What rules apply to targeted advertising and direct approaches to customers outside a franchisee’s own territory?
• Sales channels: How will the online shop, orders through platforms, mobile services and customers operating across regions be handled?

Start by reviewing your existing business. Where do customers actually come from? Which sales are generated on site, through deliveries or through digital orders? Existing corporate customers and ongoing contracts should be documented separately. Otherwise, you may promise a new franchisee customer relationships that your original business is meant to continue serving.

The result should be a clear description of the protection offered: what is protected, against whom, and with which expressly stated exceptions? Avoid sweeping statements such as “The whole city is yours” if the intention is merely to rule out an additional shop.

2. Shape territories around the business model

A postcode map is a useful starting point, but it is not a commercial justification. A business operating from fixed premises needs different boundaries from a mobile repair service. Travel times, shopping habits, competition, commercial locations and natural barriers may matter more than the size of the area alone.

Draw on the experience of your existing business, but do not assume its catchment area can simply be replicated elsewhere. A location next to a transport hub may attract customers from a much wider area than a business in a residential neighbourhood. Explain the assumptions behind each proposed territory and identify anything that has not yet been tested.

Prepare a short territory profile for each proposed area, including:

• a clearly identified map and a written description of the boundaries;
• existing company-owned locations and territories already promised to franchisees;
• relevant demand factors and operational requirements;
• customers, locations or sales channels expressly reserved by the franchisor;
• the document’s current status and the date of its last review.

Test borderline cases using specific addresses. Who handles an enquiry from a business with several branches? Which franchisee serves a customer who moves? For mobile services, also clarify whether internal allocation is based on the customer’s home address, the place where the service is provided or the business address.

Important: A protected territory is not a revenue guarantee. Do not present commercial expectations as a guaranteed result of territorial exclusivity.

3. Observe the legal limits in Germany

Germany has no standalone franchise act and no general government franchise register. Territorial arrangements are governed in particular by the German Civil Code (BGB), where applicable the German Commercial Code (HGB), and German and EU competition law. Standard-form contractual clauses may also be subject to legal scrutiny under the rules on standard terms and conditions, even in business-to-business agreements.

Territorial protection does not arise automatically when a franchisee joins a network. The specific agreement is what matters. At the same time, customer acquisition and sales channels cannot be restricted at will. Particularly relevant provisions include section 1 of the German Act against Restraints of Competition (GWB), Article 101 of the Treaty on the Functioning of the European Union (TFEU), and the EU Vertical Block Exemption Regulation, Regulation (EU) 2022/720.

Competition law distinguishes, among other things, between active sales, such as targeted approaches to customers in another territory, and passive sales, such as responding to unsolicited customer enquiries. Restrictions on active sales may be permitted under certain conditions. Bans on passive sales are generally particularly problematic. Effective use of the internet must not simply be prohibited either. The details depend on the distribution structure and the specific arrangement, and require specialist legal review.

For pre-contractual disclosure, there is neither a generally prescribed statutory franchise disclosure form nor a uniform statutory waiting period for franchise agreements. However, disclosure duties arise in particular from the pre-contractual legal relationship under sections 311(2) and 241(2) of the BGB. Territorial boundaries, known overlaps and reserved rights that are material to the decision should therefore be explained accurately and in good time. Industry association codes do not replace these statutory requirements.

4. Plan for growth and borderline cases in advance

Before making your first commitment to a franchisee, decide how enquiries will be allocated and disputes resolved. A central process should record when an enquiry arrived, where the service is to be provided and who will handle it. Rules for allocating work internally must remain distinct from unlawful restrictions on sales.

Also plan for what happens as demand grows. An additional territory, a second location or a change to territorial boundaries needs clear, justifiable conditions. Do not rely on a blanket clause allowing the franchisor to shrink promised territories at any time. Changes should undergo legal review, be negotiated transparently and be documented.

Before making any new commitment, check that the map, the schedule to the agreement and the sales presentation are consistent. All three must describe the same scope of protection. Appoint someone within the business to check existing commitments before further locations are offered.

Practical takeaway: Start by preparing a territory profile for your own business and one proposed franchise territory. Use these to test actual customer journeys, digital orders and borderline cases. Only turn the proposal into a binding offer once the scope of protection, exceptions and legal limits are aligned.