Territorial Exclusivity in Franchise Agreements in Lebanon: A Practical Guide

When turning an established business in Lebanon into a franchise network, granting your first franchisee broad territorial exclusivity may seem an easy way to encourage investment. But an imprecise promise could later prevent you from opening a suitable outlet or trigger a dispute over a single delivery order. Treat territorial exclusivity as a clearly defined commercial decision reflected in a precise contract, not a marketing phrase whose details can wait until after signing.

1. Define the rights before drawing the boundaries

Exclusivity does not follow automatically from granting a franchise. The agreement should specify whether you are granting the right to operate one outlet, protection against other outlets opening within a defined area, or the right to develop several outlets. These are different rights, and combining them under the phrase ‘exclusive franchise for the territory’ leaves room for interpretation.

Start with an internal decision document that answers the following questions:

• Are you committing not to open a company-owned outlet within the territory?
• Are you also committing not to grant another franchise there?
• Does the protection cover every business format, or are kiosks and temporary outlets excluded?
• Can the franchisee open additional outlets, or does each require separate approval and an agreement?

Also distinguish between exclusivity and priority rights. You might give the franchisee the first opportunity to negotiate for a new outlet without allowing them to block expansion indefinitely. In that case, specify how notice will be given, the deadline for responding and what happens if that deadline passes without agreement.

Avoid promising exclusivity across an entire governorate simply because a prospective franchisee wants it. Base the territory’s size on the business’s capacity to serve it and a realistic expansion plan, rather than negotiating leverage alone.

2. Draw boundaries that are clear and workable

A neighbourhood name or a phrase such as ‘Beirut and its suburbs’ is not enough to define a contractual right. The parties may have different views of where the boundaries lie, and a single street may separate two outlets serving the same customers. Attach a clear map to the agreement and define the boundaries using street names or coordinates. State which takes precedence if the written description and map conflict.

Before approving the map, review data from your existing business: where do customers come from? Where are delivery orders concentrated? How far can the team serve while maintaining consistent quality? A circle drawn around an outlet is no substitute for understanding trading patterns and access to the premises.

Also examine distinctive types of location within the proposed boundaries, such as shopping centres, hospitals and universities. If you want to exclude any of them, name them or define their category precisely before signing. An open-ended exception allowing the franchisor to select any location later could leave the promised protection with little practical value.

Record existing outlets and previously granted rights in a schedule to the agreement. Then test the map with a simple question: if a suitable site became available tomorrow on the territory’s boundary, could both parties establish its status without a lengthy debate? If not, the boundaries need revising.

3. Separate outlet territory from digital order coverage

Exclusivity for a physical outlet does not, on its own, resolve questions about sales through websites or delivery apps. A customer may be within one franchisee’s territory, but their order may reach a central platform whose system routes it to another outlet. You therefore need to distinguish where the sale is made, where the order is fulfilled and which party records the revenue.

Set out written rules covering recurring situations:

• Order allocation: Is this based on the delivery address, the outlet’s capacity or the customer’s choice?
• Inability to fulfil an order: Who handles the order when an outlet is temporarily unavailable, and how is the transfer recorded?
• Central sales: How are corporate and event orders spanning more than one territory handled?
• Complaints and refunds: Who communicates with the customer, and who bears the cost according to the cause of the problem?

For example, if the central platform receives an order within a protected territory after the outlet has closed, the parties could agree in advance to transfer it to an available outlet under a clear procedure. This is a suggested contractual arrangement, not a mandatory legal rule.

Avoid promising to prevent every sale across territorial boundaries. Customers may choose to visit another outlet themselves. The key is to distinguish their freedom of choice from organised targeting campaigns or distribution arrangements that conflict with the agreed rights.

4. Review the legality of exclusivity and how it can be changed

Lebanon has no standalone franchise law establishing a general exclusivity framework or requiring a franchise-specific disclosure document. The relationship is governed by general legal rules, principally the Code of Obligations and Contracts and the Code of Commerce, with intellectual property, consumer protection and competition laws also relevant depending on the issue. The absence of specific legislation does not mean that every contractual restriction is automatically permissible.

Territorial restrictions require review under Competition Law No. 281 of 2022. Whether Legislative Decree No. 34 of 1967 on commercial representation applies to a particular franchise arrangement also requires examination of the actual relationship. Do not assume that it applies, or that it does not, merely because of the agreement’s title.

If continued exclusivity depends on performance, define verifiable indicators and their data sources, review dates, notice requirements and an opportunity to remedy shortcomings. Draw a clear distinction between reducing exclusivity and terminating the agreement, and do not allow territory changes to become sudden decisions without safeguards. Have a Lebanese lawyer review the final wording to verify its legality and implications.

Practical takeaway: Before offering the franchise, prepare a map to attach to the agreement, a list of rights and exceptions, rules for allocating orders and a defined review procedure. Well-designed exclusivity protects the franchisee’s investment while leaving the franchise network room to grow without conflicting promises.