Franchise Territory: Check Your Rights Before You Buy

You have found a great location, but what happens if the same brand opens around the corner? In the Philippine franchise market, buying a franchise does not automatically give you exclusive rights to an area. Before signing, make sure you understand what territory you are being granted, which sales channels it covers and what happens when operations overlap.

1. Establish exactly what is protected

Permission to operate at a particular site is different from the right to keep other branches of the same brand out of the surrounding area. Do not assume they are the same simply because the contract names a city or barangay (a local administrative district).

Ask for the following to be clarified in the written agreement:

• Boundaries: The exact streets, barangays, buildings or distance from an agreed point.
• Type of protection: Are all new branches prohibited, or only the granting of another franchise?
• Operations covered: Does the protection include branches owned directly by the franchisor?
• Exceptions: Can separate outlets open in markets, airports, schools or at temporary events?

If the boundary is based on distance, specify whether this is measured in a straight line or along the actual road route. Attach a dated map acknowledged by both parties. A verbal promise that “you will be the only one in that area” is not enough.

2. Include deliveries and online sales

Your physical location may be protected without protecting access to customers nearby. For example, a neighbouring branch might accept delivery orders from within your territory. Head office might also sell directly to large offices or schools there.

Ask how orders from the brand’s main website, delivery apps and national purchasing agreements will be allocated. Who chooses the branch that fulfils the order? Which branch is credited with the sale? Who bears the cost of discounts and delivery charges, and who handles complaints?

Also have the agreement state whether you may advertise or deliver outside your area. Your obligation to stay within your territory should be matched by protection against other branches operating within it.

If you are told that the app being used cannot enforce territorial boundaries, ask for another clearly defined process. Options to negotiate might include order allocation rules or regular reviews of overlapping service areas. These are negotiating proposals, not automatic legal rights.

3. Understand the law and the limits of protection

The Philippines has no single comprehensive franchise law. Important legislation includes the Civil Code of the Philippines, which governs contracts, and the Intellectual Property Code, which covers licensing and technology transfer agreements. There is no general, automatic right to an exclusive territory simply because you have bought a franchise.

There is also a specific order for micro, small and medium-sized enterprises within its scope: Executive Order No. 169, series of 2022. It sets minimum terms for the relevant agreements and a framework for registering them with the Department of Trade and Industry (DTI). This does not guarantee that a location will be profitable or that its territory will be protected. Have your contract checked for compliance and confirm the applicable process with the DTI.

DTI Department Administrative Order No. 10-24 advises prospective franchisees to request the information they need for due diligence. It is advisory, rather than a general obligation on franchisors to provide a prescribed disclosure document. You should therefore actively request a list of existing branches and approved locations that could affect your business.

4. Check whether exclusivity can be lost

The first page may promise protection, while conditions elsewhere weaken it. Read the contract, its annexes and any manuals incorporated into the agreement.

Look out for provisions that allow the franchisor to:

• reduce the territory if sales targets are not met;
• add other shop formats in the same area;
• change the boundaries simply by giving notice;
• withdraw protection if your opening is delayed.

Ask how a breach is assessed, what notice you will receive and how long you will have to put it right. If you must open additional branches to retain the territory, budget for the necessary investment and lease obligations.

5. Agree remedies before a dispute arises

A prohibition is not enough without a way to enforce it. Have the agreement specify whom to complain to, what evidence is required and when the franchisor must respond. Ask a lawyer to review the procedures for mediation, arbitration or court proceedings.

You could propose adjustments to delivery areas, measures to prevent unauthorised new branches, or agreed remedies for a breach. Do not simply stop making payments due under the agreement without legal advice; doing so could put you in breach separately.

Practical reminder: Before buying, obtain a clear map, a complete list of exceptions and a written dispute resolution process. Protection for your location should be set out in the contract, not merely promised in the sales presentation.