Territorial Protection for Your First Franchise in Slovenia

When you first expand an existing business through franchising, prospective franchisees often ask: “Will this territory be mine alone?” Your answer should be more than a promise not to open another outlet nearby. Territorial protection affects future expansion, online sales and relationships across the franchise network. Before making an offer, define what you are protecting, which exceptions apply and how you will put the agreement into practice.

1. Separate the operating area from exclusivity

Permission to open a unit at a particular address does not automatically grant exclusive rights across the entire municipality. Equally, a franchisee’s delivery area is not necessarily the territory in which you protect them against new outlets.

In your draft offer, define the following separately:

• unit location: the address at which the business is authorised to operate;
• service area: the area the unit can cover operationally;
• protected territory: the area in which the franchisor agrees to limit certain expansion activities of its own;
• scope of exclusivity: whether protection applies to company-owned outlets, other franchised units or both.

Mark the boundaries on a map and describe them in terms that can be checked. “Ljubljana and the surrounding area” does not establish where the right ends. Even a distance in kilometres needs a defined starting point and a method of measurement.

Do not promise a large territory for your first franchise simply to win over a strong candidate. First assess how much demand one unit can realistically serve. For services, consider travel time and team availability; for retail, consider accessibility and shopping habits. Protection should support a viable business plan, not replace an assessment of demand.

2. Check the legal limits of territorial agreements

Slovenia has no specific franchising legislation, and franchise agreements are not regulated as a distinct type of contract. The contractual relationship is governed primarily by the Slovenian Obligations Code (OZ). The parties are free to structure their relationship, but not in a way that conflicts with mandatory legal provisions, the constitution or moral principles. Territorial exclusivity therefore does not arise automatically: its scope must be established by agreement.

The Prevention of Restriction of Competition Act (ZPOmK-2) is also relevant. Where an agreement may affect trade between EU Member States, EU competition law also applies, particularly Article 101 of the Treaty on the Functioning of the European Union. Commission Regulation (EU) 2022/720, which sets out the conditions for a block exemption, is important when assessing vertical agreements.

Distinguish between a commitment not to open an additional unit yourself and sales restrictions imposed on franchisees. Actively targeting customers in a particular territory is not the same as responding to unsolicited enquiries from those customers. Restrictions on passive sales are generally particularly problematic; whether a particular restriction is permissible requires an assessment of the specific agreement.

Nor do market shares below 30 per cent give both parties blanket permission to impose any territorial restriction. Other conditions must also be met for the block exemption to apply. Before signing, ask a lawyer to review the entire sales model, not just the exclusivity clause.

3. Agree arrangements for online orders and shared customers in advance

A map alone does not resolve who handles a customer ordering through a shared website. The customer may live within a protected territory, choose to collect elsewhere and need a service at a third address. Set the rules for centrally received orders before you start offering the franchise.

Map out your sales channels: physical outlets, the online shop, telephone orders, delivery platforms and contracts with customers operating across multiple locations. For each channel, specify who accepts the order, who fulfils it and who invoices the customer.

If you intend to continue serving certain existing customers directly, identify them clearly. The same applies to any future contracts with major customers. A broad exception for “all important customers” could effectively strip the promised protection of its value.

Example: a franchisee is protected against the opening of another physical unit within the agreed territory, while the franchisor retains its online shop. The offer must make this distinction clear. If the local unit fulfils online orders, the fulfilment costs and the payment it receives should be agreed in advance. Allocating centrally received orders must not become a disguised, unlawful restriction on sales to other customers.

4. Set out how protection will be reviewed and changed

If you want continued exclusivity to depend on the unit’s performance, use clear, verifiable conditions. You might monitor agreed territorial coverage, responsiveness or delivery capacity. Also explain how circumstances beyond the franchisee’s control will be taken into account.

The contract should specify the review period, the data source, a written warning procedure and a reasonable period for remedying any shortfalls. The consequences should be clear: losing exclusivity is not the same as termination of the franchise agreement. Avoid clauses that allow you to reduce the territory at your discretion without clear criteria.

Before signing, work through three scenarios together: a neighbouring unit opening, an online order from within the protected territory and an order from a major shared customer. If the answers are not clear to both parties, the agreement is not ready.

Practical takeaway: prepare a map, an overview of sales channels and a precise description of the exceptions. Promise only the protection you can deliver, then have its restrictions reviewed for compliance with competition law.