Territorial Exclusivity When Buying a Franchise in Venezuela

Buying a franchise does not guarantee that you will be the only operator authorised to serve a particular area. In franchising, territorial protection depends on the scope of the agreement and the applicable rules. Before forecasting sales or financing premises, clarify who will be allowed to compete with you under the same brand, through which channels and for how long.

1. Distinguish an allocated territory from genuine exclusivity

An agreement may specify where your outlet will operate without preventing the franchisor from opening another nearby. Permission to operate at an address is not the same as territorial exclusivity. Nor is a promise of a ‘protected area’ sufficiently precise unless it identifies the boundaries and exceptions.

Ask for a schedule defining the territory through a map and a verifiable description: streets, municipalities, coordinates or another unambiguous reference. If a radius is used, define the point from which it is measured and how it is calculated. The schedule must form part of the agreement, rather than remain a separate sales presentation.

Next, identify exactly what the franchisor is committing to:

• Not opening company-owned outlets within the territory.
• Not granting new franchises in that area.
• Not authorising alternative formats serving the same customers.
• Disclosing existing outlets and previously committed projects that will be exempt.

Also ask whether you have exclusivity or merely a right of first refusal over a new opening. A right of first refusal requires clarity about how you will receive the offer, how long you will have to respond and what happens if you cannot invest. It does not necessarily prevent another operator from eventually opening an outlet.

2. Include digital sales and alternative formats

Protection limited to traditional premises may leave out a substantial share of competition from the brand itself. Review how orders placed through apps, the franchisor’s online shop, delivery-only kitchens, kiosks and business-to-business sales will be handled.

It is not enough to ask who receives the order. Define who invoices the customer, prepares and delivers the order, handles returns and bears promotional costs. If a customer in your territory buys directly from head office, the agreement should clarify whether you will have a role in that transaction or whether it is expressly excluded from your protection.

Create a simple matrix with four columns: channel, authorised operator, territorial criterion and allocation of revenue or costs. For home deliveries, for example, the criterion could be the delivery address, provided both parties agree and it is operationally workable.

Do not budget for income from channels you have no right to operate. Prepare one forecast based on the protection offered and another allowing for the permitted exceptions. Consider sales, margins, deliveries and royalties. If the second forecast does not cover operating costs and loan repayments, you need to renegotiate the terms or reconsider the location.

3. Understand what Venezuelan law protects

Venezuela has no comprehensive franchise law or general mandatory pre-contractual disclosure regime equivalent to those in countries that require a franchise disclosure document with prescribed content and deadlines. You can request such a document, but you should not assume that its title proves compliance with a Venezuelan legal obligation of that kind.

The relationship rests primarily on the Civil Code, covering contracts and obligations, and the Commercial Code, depending on the commercial nature of the transaction. The Industrial Property Law is relevant to the trade mark and its licensing. The Autonomous Intellectual Property Service (SAPI) has responsibilities in intellectual property: it does not guarantee profitability or itself grant exclusive commercial rights over an area.

The Antimonopoly Law must also be considered. Freedom of contract does not allow parties to set aside mandatory competition rules. A specific historical reference is the Guidelines for the Assessment of Franchise Agreements, issued by Procompetencia in 2000, which concern the assessment of these agreements from a competition law perspective; they are not a pre-contractual disclosure law. A local lawyer should review their scope and applicability alongside the current legal framework.

Do not, therefore, assume that you have an automatic legal right to prevent the brand from opening another outlet. Territorial protection must be agreed in the contract and be legally permissible.

4. Negotiate duration, changes and remedies for breach

Broad exclusivity can lose its value if the franchisor can reduce it unilaterally. Check how long it lasts and whether it continues on renewal. If it depends on commercial targets, insist on measurable indicators, defined assessment periods and access to the data used to assess your performance.

It is advisable to agree the following in writing:

• Advance notice of any failure to meet targets and a reasonable opportunity to remedy it.
• A procedure for changing the territory map, with no automatic changes through the operations manual.
• Notification of openings that could affect the protected area.
• Procedures for raising complaints and consequences for breaching exclusivity.

With legal advice, negotiate possible remedies: ending the offending conduct, agreed compensation, financial adjustments or termination, as appropriate. Do not unilaterally stop paying royalties during a dispute without assessing the legal consequences.

Practical conclusion: include a signed map, a channel matrix and clear rules on changes and breaches in the agreement. Assess the outlet’s viability on the basis of those actual contractual rights, not a verbal promise of exclusivity.