Buying a Franchise: Check Territorial Rights Before You Pay

A busy location will not necessarily protect your sales if another outlet of the same brand can open next door. Before joining a franchise network in Indonesia, prospective franchisees need to check their territorial rights: where they may operate, who may serve customers there, and how those protections are set out in the agreement. Do not rely on verbal promises that an area will be “yours”.

1. Distinguish between an operating territory and exclusive rights

An operating territory defines the area in which you are permitted to run your business. Exclusive rights provide a degree of protection against other outlets or sales channels within the same network. The two do not automatically mean the same thing.

For example, an agreement specifying “the City of Bandung” as your operating territory does not necessarily prevent the franchisor from appointing another franchisee in that city. Likewise, approval for a single outlet address does not automatically protect the surrounding area.

Ask for written answers to the following questions:

• Is the territory exclusive or non-exclusive?
• Do the restrictions apply to both franchisor-owned outlets and those run by other franchisees?
• Does the protection cover all business formats, including small kiosks and pop-up outlets?
• When does the protection begin and end?
• Does the protection depend on sales targets or an opening deadline?

Treat exclusivity as a right that must be established in the contract, not as an automatic benefit of buying a franchise. If the brand offers a territory without protection, assess the business on the assumption that competitors from the same network may appear.

2. Use disclosure rules to scrutinise the offer

Indonesia’s specific regulatory framework for franchising is Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. Do not rely solely on sample contracts or articles that still use the old regulation as their main reference.

Government Regulation No. 35 of 2024 requires franchisors to provide prospective franchisees with an offering prospectus at least 14 calendar days before the agreement is signed. Use this review period to compare the commercial offer, prospectus and draft contract, rather than simply waiting for the signing date.

The regulation also makes the operating territory one of the minimum required elements of a franchise agreement. However, the requirement to specify a territory does not guarantee that your territory is automatically exclusive. The nature and scope of any protection must be checked in the written agreement.

Ask for the information on business premises and franchisees listed in the prospectus, then cross-check it against outlets already operating near your proposed location. Also ask about planned openings that are not yet visible on the ground. The current outlet list will not necessarily reveal expansion plans.

Check the Surat Tanda Pendaftaran Waralaba (STPW), or Franchise Registration Certificate, as applicable to each party’s role. The STPW is proof of registration, not proof that a location will be profitable or that your territorial rights are exclusive. For registration procedures and implementing requirements, confirm the current requirements through Indonesia’s Online Single Submission (OSS) system or the relevant trade authority.

3. Map the boundaries and sales exceptions

Vague boundaries can easily lead to disputes. Phrases such as “around the outlet” or “the main area” make it difficult to determine whether a new outlet breaches the agreement.

Propose a map annex signed by both parties. Use administrative boundaries, a list of streets, coordinates or a radius with a clearly defined measurement method. If using a radius, specify whether it is measured as a straight-line distance or by travel distance. Make sure the annex is expressly stated to form part of the agreement.

Next, discuss sales that do not follow physical outlet boundaries:

• Online orders: may other outlets accept orders from customers in your territory?
• Delivery services: may delivery areas overlap?
• Corporate customers: who handles orders for offices or large events in the area?
• Special locations: are shopping centres, stations, campuses and hospitals excluded?
• Different formats: may the network open a delivery-only kitchen or a kiosk inside another shop?

Exceptions are not necessarily disadvantageous, but you must be able to assess them before buying. Create a simple map showing existing outlets, planned outlets and excluded locations. Then recalculate your sales projections to allow for customers being shared between outlets. Do not assume that all demand within the territory will translate into revenue for your outlet.

4. Negotiate changes and remedies for breaches

Territorial protection can lose its value if the franchisor is allowed to change the boundaries unilaterally. Check whether changes require written consent, advance notice or merely an internal decision by the network.

If exclusivity is tied to targets, make sure the performance measures, assessment period, data sources and opportunity to improve are clearly explained. Also discuss how supply delays or mandatory refurbishments will be taken into account. Do not accept terms allowing you to lose your territory for “unsatisfactory performance” without clear criteria.

Ask for a complaints procedure that identifies who receives reports, what evidence is required, the response deadline and the route for resolving disputes. Remedies such as territorial adjustments or compensation need to be negotiated; do not assume you are automatically entitled to them.

Before paying a reservation deposit, also check the refund terms if no agreement is reached on the territory. Ask a legal adviser to review the territorial clauses alongside those covering amendments, termination and dispute resolution, so that the protections do not conflict with one another.

Practical takeaway: do not pay solely on the strength of a promise that your area is “protected”. Have a territory map, a list of exceptions and agreed written protection clauses in place before making your decision.