Franchising: how to check territorial exclusivity

Joining a franchise network does not automatically give you an exclusive territory. Before investing, you need to understand whether the brand grants exclusivity, which activities it protects and what the franchisor or other franchisees are still allowed to do. A promise such as ‘you will be our main presence in town’ is not enough: you need a precise clause, read alongside its annexes and any exceptions.

What Italian law requires

In Italy, franchising is governed by Law No. 129 of 6 May 2004. Article 3 requires the agreement to be in writing, failing which it is void. It also requires the agreement to state expressly the scope of any territorial exclusivity, both in relation to other franchisees and to sales channels and outlets operated directly by the franchisor.

The crucial word is any: the law does not give every franchisee a protected territory. An offer without exclusivity is not unlawful for that reason alone. However, you should assess it with the understanding that competition within the network could affect your business performance.

Article 4 requires the franchisor to provide a complete copy of the agreement to be signed, together with the annexes required by law, at least thirty days before signing, subject to the specific confidentiality provisions set out in the legislation. Use this period to check the territorial clause too: do not leave its terms to be settled after signing.

Also distinguish exclusivity from a priority right relating to future openings. The former may prevent certain activities within the territory; the latter may simply give you the opportunity to apply ahead of others, without guaranteeing that no new outlets will open.

Turning a promised territory into verifiable boundaries

Protection is useful only if you can establish where it begins and ends. Expressions such as ‘central area’ or ‘main trading area’ leave room for different interpretations.

Ask for the agreement to identify the territory using administrative boundaries, a list of streets, coordinates or an attached map expressly referred to in the agreement. If it uses a distance from the shop, specify how that distance is measured: as the crow flies or by road, and from which starting point.

Then check the following:

• Protected activities: does exclusivity cover everything you will sell, or only certain products or services?
• Parties covered: what obligations does the franchisor accept regarding company-owned shops, other franchisees and activities carried out through related companies?
• Existing exceptions: are any outlets, customers or commercial arrangements excluded from the protection?
• New openings: are exceptions allowed for shopping centres, stations, temporary premises or other formats?

A map alone does not answer these questions. It must be consistent with the wording of the clause. Also ask whether any planned openings could fall within the exceptions: this information will help you assess the practical value of the protection on offer.

Online sales and customers crossing boundaries

An exclusive territory does not necessarily mean an exclusive customer base. A consumer may live in your area but buy from the brand’s website or independently choose to visit another franchisee’s shop.

Before signing, ask how online orders for delivery to addresses within your territory are handled. Who receives the payment? Who prepares and delivers the order? Who bears the cost of returns and customer support? If the local outlet is entitled to a payment, the basis for allocating it and the reporting arrangements must be clear.

Also check how enquiries received through the central website, bookings, sales through third-party platforms and contracts with customers operating in several cities are handled. Exclusivity for a physical shop should not automatically be interpreted as exclusivity across every channel.

These clauses must also comply with competition rules. Among other things, EU Regulation 2022/720 distinguishes between active and passive sales: specifically targeting customers in a territory is not the same as responding to unsolicited enquiries. Not all restrictions are permitted. Have a lawyer review the proposed restrictions, particularly those concerning the internet, rather than assuming that an outright ban is valid simply because it appears in the agreement.

Checking how secure the protection is and what happens if it is breached

Exclusivity may depend on meeting sales targets. Check whether missing a target allows the franchisor to reduce the territory, remove protection or authorise another outlet. Ask for measurable criteria, review timescales and, where applicable, an opportunity to put matters right before any change takes effect.

Also establish who can change the boundaries and through what procedure. Protection described as extensive loses value if another clause allows it to be changed unilaterally without clear conditions.

Finally, check how to report a possible breach, how quickly you should receive a response and what remedies are available. Do not assume that a disputed opening entitles you to suspend payments: the consequences must be assessed against the agreement and the particular circumstances.

Practical tip: before signing, bring together the map, protected activities, excluded channels, conditions for retaining exclusivity and available remedies in a single summary sheet. If any of these still rests on a verbal promise, ask for written clarification.