Buying a franchise: how to protect your sales territory

The promise that “this territory will be yours” can strongly influence your decision to buy a franchise. Yet a nearby outlet is not the only potential competitor: the brand’s online shop, delivery platforms and sales to major business customers can also draw customers away. Successful cooperation within a franchise network therefore needs clear rules on territories and sales channels. Before signing, check what the agreement actually guarantees and which rights the franchisor reserves.

1. Distinguish between an approved location and a protected territory

The right to open an outlet at a particular address does not automatically give you exclusivity in the surrounding neighbourhood, municipality or region. The agreement may simply authorise you to operate from an approved location, while leaving the franchisor free to open another outlet nearby or award another franchise.

Clarify three separate points:

• Approved location: where you may operate and whether you need consent to relocate.
• Protection against new outlets: whether the franchisor may open its own outlet within the agreed territory or allow another franchisee to do so.
• Rules on selling into the territory: how advertising, customer visits, delivery and online orders are handled.

The territory should be defined in a schedule to the agreement, with a map and verifiable boundaries, such as streets or postcodes. Terms such as “Ljubljana and the surrounding area” or “the wider city centre” leave too much room for dispute. If the territory is defined by a radius around the outlet, specify whether distances are measured as the crow flies or by road.

Check the exceptions too. Shopping centres, petrol stations, temporary sales outlets or special retail formats may fall outside the protection, even though they target the same customers.

2. Check online sales and shared customers

A map alone does not tell you who gets an order. A customer might see your local advert, order a product on the central website and collect it from you. If the agreement only covers physical outlets, you could be left with the cost of providing the service while someone else in the franchise network receives the revenue.

For each significant sales channel, set out who accepts the order, who issues the invoice, who provides the service and how revenue and costs are shared. Address the following separately:

• orders placed through the brand’s online shop;
• delivery through third-party platforms;
• online enquiries passed on to local outlets;
• contracts with customers operating across Slovenia;
• collections, returns and complaints relating to online purchases.

A useful test is a specific example: a customer in your territory orders through the central website and requests a service at their home. Who handles the customer, and who receives payment? The answer should be clear from the agreement or a schedule expressly incorporated into it, not merely from a sales adviser’s presentation.

An agreement on allocating orders does not automatically give you the right to access all customer personal data. Access must comply with data protection rules.

3. Take Slovenian and EU rules into account

Slovenia has no dedicated franchising law, legally prescribed standard pre-contractual disclosure document or specific compulsory franchise register. That does not mean contracts are unregulated. The contractual relationship is governed primarily by the Slovenian Obligations Code (OZ), including the principle of good faith and fair dealing and the rules on negotiations, performance of obligations and liability for breaches.

For territorial restrictions, particular importance attaches to the Prevention of Restriction of Competition Act (ZPOmK-2) 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 sets out the conditions for a block exemption for certain vertical agreements; it is not blanket permission for every restriction in a franchise agreement.

The distinction between active sales, such as targeted approaches to customers in another territory, and passive sales, such as responding to their unsolicited enquiries, matters. Some restrictions on active sales may be permitted, whereas blanket bans on passive sales are generally problematic. Nor can effective use of the internet simply be prohibited.

A promise of a completely “closed” territory therefore needs legal review. The European Code of Ethics for Franchising is a self-regulatory standard for the franchise sector, not Slovenian law, and it does not replace an assessment of whether individual restrictions are lawful.

4. Establish when protection can change

Exclusivity may depend on minimum turnover, an opening deadline, quality standards or an obligation to open additional outlets. These conditions can require a considerably larger investment than the initial offer suggests.

Check how targets are measured: whether turnover includes online orders and tax, how returns are treated, and who supplies the data. The agreement should also address circumstances largely beyond your control, such as delays in supplies from the franchisor or prolonged loss of access to the premises.

Negotiate a requirement for written notice, a reasonable period to remedy any breach and a clear procedure before the territory can be reduced. Check whether the franchisor may change the boundaries unilaterally or by amending the operations manual. If territorial protection is a key reason for your investment, the agreement should place appropriate limits on changes to it.

5. Test the agreement before signing

Prepare a one-page summary covering the map, exceptions, online channels, criteria for retaining protection and the procedure for dealing with a breach. Then test three scenarios: a nearby outlet opening, an online order from your territory and a missed sales target. Link each answer to a specific clause in the agreement.

Ask a lawyer to check the agreed remedies for breach, jurisdiction over disputes and governing law, particularly if the franchisor is based abroad. Do not assume that a dispute automatically entitles you to stop paying franchise fees.

Practical takeaway: do not buy a promise that a place will be “yours”. Before signing, bring the map, sales channels and conditions for changes together in a clear written agreement that makes commercial sense and is legally permissible.