How to Set Up Territorial Protection in a Franchise Agreement

When preparing to franchise your existing business, it is easy to say, “You will be our only outlet in this district.” But that promise can become unclear when a new shopping centre opens, an online order comes in or a neighbouring outlet expands its delivery area. For a healthy franchise network, territorial protection is more than a line drawn on a map: it is a shared framework setting out which commercial rights are granted, through which channels and on what terms.

1. Decide what protection you are offering

Territorial protection can take several forms. Your first decision should be exactly what you are promising the franchisee. Agreeing not to open another franchise outlet in a defined area, agreeing not to open your own company-owned outlet there, and giving the existing franchisee priority for future openings are different commitments.

Before drafting the agreement, answer these questions:

• Does the protection cover only physical outlets?
• Does it also cover outlets opened directly by the franchisor?
• How will different formats, such as shopping centre locations, airport outlets or pop-up shops, be treated?
• What rules will apply to corporate sales handled by head office?
• Will the franchisee have the right to open a second outlet, or merely priority in negotiations?

A promise not to open new outlets does not mean that every customer in the territory belongs to the franchisee. Maintain this distinction both in discussions and in the agreement. Do not present territorial protection as a guarantee of turnover or profitability: competition, customer preferences and local demand can change.

For example, if head office supplies bulk orders to companies in the same district, decide at the outset whether those existing customer relationships will continue. Broad wording such as “all sales rights have been transferred” could create obligations you did not intend.

2. Turn the boundaries into a measurable schedule to the agreement

A district name alone is not always enough. Administrative boundaries can change, and the same street may run through several neighbourhoods. Distance as the crow flies and driving distance do not define the same commercial area either. Choose a method suited to your business model and state clearly how measurements will be made.

It is useful to include a dated map, boundary streets or coordinates, and a clear description of the territory in a schedule to the agreement. Specify which takes precedence if the map and the written description differ. If you define a delivery area separately, explain that this does not confer the same rights as protection against new outlet openings.

Do not determine the size of a territory solely by looking at your existing business’s turnover. Consider footfall, transport barriers, customer habits, delivery capacity and planned development together. Two territories of the same size may not have equal commercial potential.

Test your proposed boundaries against these scenarios:

• What happens if a new shopping centre opens just outside the boundary?
• If the outlet has to relocate, will the protection remain tied to its former address?
• If head office wants to operate a different business format within the territory, what approval process will apply?

Do not leave the answers in meeting notes alone. Keep a record of map versions and any changes agreed by the parties. Set out the process for changing the territory, the method of notification and the agreement required in the contract.

3. Consider sales channels alongside competition law

Türkiye has no separate law specifically governing franchise relationships, no general public register specifically for franchise systems, and no mandatory standard pre-contractual disclosure document. However, freedom of contract is not unlimited. The Turkish Code of Obligations No. 6098, the Turkish Commercial Code No. 6102 and, in relation to the principle of good faith, the Turkish Civil Code No. 4721 provide the general framework. The Industrial Property Law No. 6769 is also important for trade mark rights.

Territorial protection requires particular attention to Law No. 4054 on the Protection of Competition. The Block Exemption Communiqué on Vertical Agreements No. 2002/2 and the relevant guidelines are important when assessing vertical agreements. The 1998 franchise block exemption regulation mentioned in older sources should not be used as a current legal basis: it has been repealed.

Competition law distinguishes between active sales targeting particular customers or territories and passive sales made in response to unsolicited customer requests. Certain restrictions on active sales into exclusive territories may be permissible under specific conditions, whereas provisions preventing passive sales can pose serious risks. An agreement does not qualify for a block exemption simply because it is labelled a “franchise agreement”.

Avoid blanket prohibitions such as “The franchisee may not accept any orders from outside its territory.” Draw up separate rules for online shops, delivery platforms, targeted advertising and orders allocated by head office. Bear in mind that banning online sales outright, or effectively preventing them, carries competition law risks. Have a specialist lawyer review your proposed arrangements before implementing them.

4. Plan how protection will continue and how changes will be made

If territorial protection depends on performance, the criteria should be clear, verifiable and within the franchisee’s ability to influence. Rather than relying solely on sales targets, you could also consider service capacity, compliance with an opening schedule or agreed local activities. These are contractual options to explore, not criteria that automatically make a provision legally valid.

Specify the data used to measure targets, the review period and how supply disruptions attributable to head office will be treated. Rather than withdrawing protection immediately when a shortcoming arises, establish a process for giving notice, obtaining an explanation and allowing an appropriate opportunity to put matters right. Do not make significant consequences, such as reducing the territory, subject to vague or unlimited unilateral powers.

Appoint someone to check existing commitments whenever a new opening is proposed. Use an approved territory register to prevent conflicts between the sales team’s verbal promises and the schedules to the agreement. Track maps, exceptions and the dates of changes in this register.

Practical takeaway: Before making your first franchise offer, prepare a territory map, a sales-channel table and a procedure for making changes. Align these three documents with the agreement and have them legally reviewed. Manage your expansion through rules agreed at the outset, rather than conflicting promises made later.