Exclusive Territory Franchise Agreement

A franchisee will rely on the exclusivity of the territory to check whether to buy the business. Therefore, if the franchisor commercially operates the franchisee`s exclusive territory, this may be a breach of good faith. In addition, this is a violation of the exclusivity clause. Therefore, a franchisor who violates the exclusive territory of a franchisee cannot act in good faith. In recent years, exclusive franchises have been disgraced by franchisors. Fewer and fewer contracts contain an exclusivity clause, with many franchisors aware of the challenges the exclusive territory poses for continued growth. The clause could hinder expansion if the area contains a larger market than originally anticipated. Franchisors were used to franchisees naturally adding a second and third vehicle, etc., due to changing consumer demand. But the reality is that each franchisee has its own comfort in terms of the development of its business. Some franchisees arrive on three or four vehicles and decide that a) they are satisfied with their income level, and (b) they do not want the effort or costs of adding other vehicles.

To protect the brand, the franchisor must therefore have some sort of mechanism that triggers the obligation for the franchisee to add a vehicle or, failing that, the right to import another franchisee into the territory. This may seem painful, but remember that the franchisee still has the right to add a vehicle and that some franchisees do build large fleets of vehicles over time. Exclusive territories are common in franchise agreements. But this does not mean that it is easy to do it properly To limit this risk, the franchise agreement will often contain the right for the franchisor to remove the exclusivity or change the boundaries of the territory if the franchisee does not meet the required performance objectives or does not comply with the franchise agreement. This protects the franchisor from a low-performing franchisee, who may be sitting on an untapped gold mine but refuses to develop it. Another proven reason to grant exclusivity to a franchisee is to increase your brand`s desire for other emerging franchisees. Many franchisees opt for a partnership with a franchise, as it is a sure way to achieve their financial and business ambitions. However, if franchisees realize that their franchisor is in no way favourable, such as the denial of exclusivity. B, they can opt for a partnership with a competitor. Franchisors often reserve the right to sell a new franchise on the territory of a franchisee in which the franchisee does not meet or meet the default thresholds. This is understandable from the point of view of a franchisor, who cannot afford to have an otherwise efficient territory and who, in the absence of franchisors, cannot achieve reasonable levels of income.