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Franchise Territory Issues

Whether you are starting a franchise or have been operating a franchise for years, territory issues can make or break your endeavor. Here are four territorial issues that the Massachusetts franchise lawyers at the Katz Law Group have found to be the most common or severe.

1. Encroachment

One of the most severe, and frustrating, territorial issues that franchisees face is encroachment. This happens when your own franchisor opens a new store near your own. Franchise encroachment often happens with no warning, and nearly always takes business away from your store.

In some cases, the encroachment breaks the terms of the franchise agreement. More often, though, affected franchisees who review the terms of this agreement find that the encroachment is perfectly permissible.

2. Contractual Rights to Territory

The terms of the franchise agreement are crucial when it comes to territorial rights. They define the boundaries of a franchisee's territory, the nature of their rights within it, and how boundary disputes are to be resolved. Interested franchisees should make a point to fully understand their contractual territorial rights before agreeing to open shop.

The boundaries of a franchisee's territory should be made crystal clear in the franchise agreement. To the dismay of many franchisees, it is often nonexistent or only covers the store's premises and parking lot.

The nature of your rights within your territory is often underappreciated. Nonexclusive rights to operate within your boundaries can completely undermine a generous boundary line.

Negotiating both the extent of your boundaries and your franchisee rights within them can be extremely important for the future of your franchise. This is particularly important for master franchises, which often have large territories and numerous stores to manage.

3. Territorial Restrictions

The terms of the franchise agreement should also include any limitations that apply to your franchise's territorial rights. These can include:

  • Carve-outs for existing franchisees nearby
  • A prohibition against doing business outside of your given territory
  • Any areas where you have exclusive or nonexclusive rights

These restrictions can be onerous and can drastically impair your ability to make a profit with your franchise.

4. Dispute Resolution

The franchise agreement should also lay out how any territorial disputes will be resolved. Given the importance of territorial rights and limitations to a franchise, the details of the dispute resolution method can be a very big deal. If the franchisor tightly controls the process, then they can tilt the scales so much in their favor that challenging them becomes futile and your territorial rights meaningless.

Massachusetts Franchise Lawyers at the Katz Law Group

Because of how important a franchise's territory is for the success or failure of the endeavor, it is among the biggest issues for a potential franchisee to consider before agreeing to move forward. Reach out to the Massachusetts franchise lawyers at the Katz Law Group for legal advice if you are in the middle of a territorial dispute or if you are thinking of starting a franchise and want experienced input. You can contact them online or call their law office at (508) 480-8202.

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