Territorial exclusivity in franchising: what to negotiate

A recognisable brand can attract customers, but it does not guarantee that another outlet trading under the same name will not open next door. A franchise network brings together independent businesses, so the rules for sharing local demand should be clear before you invest. Territorial exclusivity requires more than assurances from your franchise network contact: it needs a precise scope of protection, rules for online sales and consequences for breaching the agreement.

1. Establish exactly what the promised exclusivity means

Start by distinguishing between three arrangements. Location exclusivity may simply prohibit another outlet from opening within a specified radius. Territorial exclusivity may involve a broader commitment by the franchisor covering a defined area. Priority rights to open another outlet, however, are not exclusivity: they usually give you the opportunity to accept an expansion proposal, but if you decline, the network can approach another partner.

These terms have no uniform statutory meaning. What matters is the wording of the contract. Ask for answers to specific questions:

• Does the restriction cover both franchisor-owned outlets and those run by other franchisees?
• Does it also cover seasonal stalls, vending machines, partner outlets and mobile sales?
• Does the franchisor undertake to ensure that its affiliated entities respect the protection?
• Does the protection cover every format operating under the brand, or only the format of your outlet?

Ideally, boundaries should be marked on a map attached to the agreement. If protection is based on a radius, specify the starting point and how distance is measured. If it follows administrative boundaries, agree what happens if those boundaries change. Avoid phrases such as ‘the immediate vicinity’ or ‘the area agreed with the network contact’.

Also ask for details of existing outlets and any rights already granted to open new outlets within the protected area. An exception disclosed only after signing could significantly change the value of the promised protection.

2. Separate protection for your premises from online sales

The absence of a second shop on your street does not mean there is no competition within the network. A customer can order the same product through the central online shop, an app or a delivery platform. Analyse how orders are handled, not just where outlets are located.

Establish who fulfils orders with delivery addresses in your territory. Is this determined by postcode, distance, stock availability or customer choice? Who receives the revenue, pays for delivery and handles complaints? If your outlet serves as a collection point for orders paid for centrally, agree a fee for that service and rules for handling and accounting for returns.

Example: the agreement prohibits another restaurant from opening within a defined zone but says nothing about deliveries from premises outside it. Technically, no new outlet opens in the protected area, yet some orders go to another partner. The solution is to agree rules for allocating deliveries, taking competition law into account, rather than simply increasing the protected radius.

Also ask about advertising targeted at residents in your area and customers served centrally, such as businesses placing orders for multiple branches. Exceptions should be documented rather than left entirely to head office’s discretion.

3. Check the legal limits of territorial protection

Poland has no separate statute governing franchise agreements and no general, franchise-specific obligation to provide prospective franchisees with a disclosure document. A franchise agreement is an ‘unnamed contract’ under Polish law, meaning it is not a separately defined statutory type of contract. It is governed primarily by the Polish Civil Code, including the principle of freedom of contract under Article 353¹ and the provisions on liability for failure to perform contractual obligations. Exclusivity does not arise automatically: it must be agreed.

Territorial protection is also subject to Poland’s Act on Competition and Consumer Protection and, where the conditions for applying EU law are met, Article 101 of the Treaty on the Functioning of the European Union. Commission Regulation (EU) 2022/720 on the block exemption for vertical agreements is also relevant.

In practice, a distinction must be drawn between active sales, meaning deliberately targeting customers in a particular area, and passive sales, meaning responding to unsolicited customer enquiries. Restrictions on actively targeting another party’s territory are not always prohibited, but broad restrictions on passive sales may breach competition rules. A customer’s ability to access an online shop does not, in itself, amount to active targeting.

Do not therefore demand an absolute ban on serving any customer from outside an allocated territory. A lawyer should assess the specific distribution model, the exceptions and the permissible scope of restrictions. A voluntary code of good practice is no substitute for this analysis or for a contractual grant of exclusivity.

4. Safeguard the continuity of protection and agree remedies for breaches

Exclusivity may depend on sales performance or compliance with standards. Agree the performance measures, data sources, assessment period and procedure for raising objections. Negotiate a period in which to put things right before the network reduces your protection. Also check whether the franchisor can unilaterally change territorial boundaries by updating the operations manual.

The agreement should specify how to report a breach, the deadline for a response and an obligation to remedy its effects. Consider a contractual penalty for breaching the non-monetary obligation to respect exclusivity. If you want to be able to claim damages above the amount of that penalty, the agreement must expressly provide for this. For serious breaches, it is also worth agreeing a right to terminate the relationship and rules for settling fees.

Practical takeaway: before buying a franchise, test the clause against three scenarios: a new outlet opening nearby, a delivery from a neighbouring territory and an order placed through the central online shop. If the agreement does not provide clear answers, the scope of exclusivity needs clarification.