Many franchisors grant to their franchisees an exclusive territory. These territories are commonly known as protected territories, or areas of protection. As the name suggests, the purpose of a protected territory is to provide franchisees with protection. Despite the name, though, many franchise agreements do not provide the level of protection that franchisees believe they are receiving. Set forth below are several questions to ask when analyzing your protected territory:
1) What Is Actually Excluded/Protected? Many franchise agreements prevent the franchisor from placing or licensing other outlets within a franchisee’s protected territory. However, franchise agreements oftentimes do not preclude franchisors from selling goods or services through alternative channels of distribution, such as the internet. Franchisors typically must disclose their reservation to sell goods and services through alternative channels. However, the disclosure may not be entirely clear.
2) Can A Zip Code Change Reduce The Territory? Over time, it has become increasingly more popular for franchisors to define protected territories using zip codes. However, using zip codes can be dangerous to franchisees.While it does not happen often, zip codes sometimes change. If a zip code shrinks, a franchisee can suddenly be faced with a smaller protected territory. For this reason, it is important that franchise agreements contain language guarding against changes in zip codes.
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If you have any questions regarding the content of this article, or any other franchise law matter, please contact Brian Loffredo at 301.575.0345 or by e-mail at firstname.lastname@example.org.
Brian is a commercial litigator with more than fifteen years of experience representing clients in the franchise industry. Brian routinely assists clients during the licensing and franchise/FDD review process, as well as with the resolution of franchise-related disputes, including those involving terminations, territorial disputes, fraud, disclosure/relationship law violations and breaches of contract. In addition, Brian represents and counsels clients in the construction industry on matters involving litigation, construction defects, licensing and compliance, collections, mechanic’s liens, payment bond and Miller Act claims, contract drafting, and compliance with home improvement laws and other construction industry laws. You can also follow Brian Loffredo on Twitter! You can also connect with Offit Kurman via Facebook, Twitter, Google+, YouTube, and LinkedIn