Buying a Franchise in India: Check Your Territorial Exclusivity

The brand’s representative says, “Yours will be the only franchise in this area.” But does that promise also cover company-owned shops, online orders and other sales formats? Before becoming a franchisee, it is essential to understand your territorial exclusivity. Your shop’s earnings depend not only on a good location, but also on whether the brand can reach the same customers through other channels. Turn verbal assurances into clear, written terms that you can verify.

1. What does an ‘exclusive territory’ actually give you?

Simply naming an area in the agreement does not grant exclusivity. It may only identify your shop’s approved location or the area in which you can promote it. First, ask what rights the brand is offering:

• Non-exclusive permission: You can operate a shop, but the brand can also open other outlets in the area.
• Exclusive rights: The agreement restricts the opening of another outlet of a specified type within defined boundaries, subject to any written exceptions.
• Right of first offer: You may receive the first offer when a new outlet is planned; this does not give you the right to prevent a competing outlet from opening.

Check whether the restriction applies only to the appointment of new franchisees or also covers the franchisor, its affiliated companies and company-operated shops. “We will not grant another franchise” does not necessarily mean “We will not open our own shop.”

If you receive a right of first offer, make sure the agreement also sets out how you will be notified, how long you have to respond and how the terms for the new shop will be determined.

2. Confirm the boundaries with a map and addresses

Phrases such as “the whole city”, “the surrounding area” or “the main market” can be interpreted differently later. Attach a boundary map to the agreement and have both parties confirm it. Include roads, wards, Indian postal PIN codes and clear geographical landmarks as appropriate.

If protection is based on distance, specify whether that distance is measured in a straight line or by road. Will it be measured from your shop’s entrance or another point? Which boundary will apply if postal codes or administrative boundaries change?

Before making a payment, ask the brand for a written list of existing shops and approved planned outlets within and around the territory. Checking only the shops already trading is not enough: rights may already have been granted to another buyer.

Also ask whether your exclusive rights will move with you if you relocate the shop, or whether fresh approval will be needed. Treat approval of the premises and territorial rights as separate issues.

3. Check online sales and exceptions separately

Even if your physical shop is protected, another outlet may still be able to deliver to addresses within your territory. The brand’s website, mobile app, delivery platforms and delivery-only centres make this distinction important.

When reviewing the agreement, obtain written answers to these questions:

• Which outlet will receive online orders from your territory?
• Can a shop outside the territory deliver to customers or run targeted promotions within it?
• Are airports, shopping centres, hospitals, office complexes or temporary stalls excluded from the exclusivity provisions?
• Does the brand retain the right to make wholesale, institutional or direct-to-consumer sales?

Not every exception is unreasonable, but you need to understand its financial impact. For example, if your forecasts include sales to a large office complex but the agreement reserves that business for the brand’s direct sales operation, your sales assumptions may be wrong.

If you are promised a share of online sales, have the agreement specify how eligible orders will be identified, how your share will be calculated and what reporting will be provided. You do not automatically have a legal right to such a share.

4. Where does legal protection come from in India?

India has no separate, comprehensive central franchising law, mandatory franchise-specific pre-sale disclosure regime or central franchise register. Do not therefore assume that you automatically have exclusive rights over a particular territory. General business registrations and local permits are separate matters.

The Indian Contract Act, 1872 provides the main legal framework for contracts, free consent, performance and remedies for breach. False assurances or misleading representations about a territory may raise legal issues; the relief available will depend on the facts, evidence and applicable provisions. Keep copies of proposals, correspondence and the final agreement.

The Competition Act, 2002 is also relevant. Section 3(4) allows scrutiny of vertical arrangements such as exclusive distribution and territorial allocation. Such terms are not automatically unlawful: the assessment concerns whether they cause, or are likely to cause, an appreciable adverse effect on competition. Have a lawyer review any wide-ranging restrictions.

5. Set out when rights end and what happens after a breach

Do the exclusive rights last for the full agreement term, or only while certain conditions are met? In what circumstances can they become non-exclusive? Will you have an opportunity to remedy a shortcoming, or can the rights end immediately? Do not leave these points unclear.

If the brand opens another outlet in your protected territory, a promise of “mutual discussion” is not an adequate remedy on its own. During negotiations, seek clear provisions covering deadlines for remedying a breach, appropriate fee adjustments and an exit option for serious breaches. These are terms to negotiate, not rights you receive automatically.

Practical takeaway: Before signing, read the territory map, the list of exceptions and the conditions for ending exclusivity together. The agreement should clearly protect the customer catchment area on which your investment plan depends.