If you have decided to buy a franchise business, you will receive a copy of the business’s franchise agreement. Before we look at what might be included in a franchise agreement, let’s briefly recap what a franchised business is. A franchise is a type of business allowing others to sell their goods or services under a licence. To do so, that individual, the franchisee is given access to the franchisor’s proprietary business knowledge, processes, and trademarks. A franchise agreement will set out the terms and conditions between the parties in this arrangement. This is a legally binding document so you must carefully read it before accepting the terms.
One of the things that will be set out in your franchise agreement will be information on your territory. A territory in this instance is a specified place in which you will be able to set up and conduct your business. A franchised business will usually have the country they operate in pre-sectioned into territories and will allocate one of these to each new franchisee. It is a good idea to check the information you receive regarding your territory against any discussions or agreements made with the franchisor. The more information you have regarding your territory the better. If possible, try to ensure you are given boundary lines so you can be sure of exactly what areas your territory includes.
There are two types of territories:
- Exclusive. The franchisor cannot appoint another franchisee within your territory for this type.
- Non-exclusive. The franchisor can appoint another franchisee in your territory but must offer you the new location within the territory first.
Your territory could also go from exclusive to non-exclusive if the terms in the franchise agreement are not complied with. For example, if you are underperforming, the franchisor may allow another franchisee to set up their business in your territory to compensate for your underperformance.
If the franchise you have joined does not have separated territories then you should be wary of the possibility of oversaturation in your area. You could request for there to be a limit, but this may become an issue if it is a smaller or relatively new franchise. This could affect the growth and awareness building of the franchise.
If you wish to move premises within your territory you will usually be required to obtain written approval from the franchisor.
As with any agreement or transactional document, you should carefully read all the terms and seek legal advice if you believe it is required.
Please note that this blog is not intended to be legal advice. This material has been prepared for informational purposes only and as general guidance. Is not intended to provide, nor should it be relied on for, legal or tax advice. You should consult your own advisors or seek professional independent advice before engaging in any transaction.
To find out more about purchasing a franchise business, or if you wish for some legal advice regarding your own franchise agreement, call us today, on 0121 268 3208 or send us an email at firstname.lastname@example.org with your query and we will get back to you.