Franchise Territory: Questions To Ask The Franchisor

Franchise Trade:

* Will the territory be exclusive, non-exclusive or will there be no territory at all (i.e., some retail franchises are defined by location such as a particular shopping mall)?

* How are the franchise territories determined? Can you choose your territory or where the site within the territory will be located?

* Is there a disclosure on the territory granted and are the precise boundaries clearly defined? Does either the franchisee or the franchisor have the right to renegotiate territory boundaries?

* Are there any minimum sales quotas or conditions imposed on franchisees in order for them to retain territorial rights?

* Can the franchisor or franchisee establish another franchise within the geographical area, or relocate the franchise? Under what conditions?

* If the franchisor can establish a future franchise in the territory, will the existing franchisee be considered before any third party, and have a ‘first right of refusal’?

* What rights does the franchisee have both inside and outside of the designated territory? For example, are there restrictions on franchisees from soliciting or accepting orders outside of their designated territories?

* What are the franchisor’s intentions for the bordering territory? Might this have an impact on your territory?

* If the franchisor chooses to open a similar franchise company under a different trademark, how will this affect your franchise territory? What will happen if the franchisor acquires or merges with a competing franchise company that has franchises in your franchise territory? Will your franchisor compensate you fairly for any resultant loss of business?

* What is the history of how the franchisor has handled territory disputes or litigation in the past?

* What do existing franchisees think of their contracted franchise territory rights?

* What are the strengths and weaknesses of offered franchise areas?

* Are there other competitors in the franchise territory? How close in proximity are they? What competition is projected in five or 10 years’ time?

* Is the franchise territory large enough? Will there be enough customers to make the franchise a success?