This is My Territory!
When it comes to opening a new franchise, prospective franchisees face many issues, but one issue that often ends up in court when franchise relationships fall apart is territory disputes—typically the argument is that there was territory encroachment. Territory encroachment and territorial concerns come in many ways, such as: requirements to develop the territory to a specific level of profitability in a certain amount of time, whether the franchisee has the right of first refusal to develop territory bordering the franchisee’s existing territory, factors that might change the nature of the territory (i.e. population, development), and how ‘exclusive territory’ is determined (i.e. by population, geography, number of customers).
When contemplating purchasing a franchise it is important that franchisees look closely at whether the territory is exclusive and under what circumstances the territory—even exclusive territory—may be encroached upon. There are many ways franchise territories may be encroached upon. For instance, a salon franchisee may be given an exclusive territory and licensed to sell the franchisor salon’s particular shampoo product, but then the franchisor salon may sell that same shampoo product in a local grocery store. Obviously, the franchisee could lose business and money by such an arrangement; even though, the franchisor never opened a competing salon in the franchisee’s exclusive territory.
Because there are many such concerns with regard to territory, if you are interested in opening a franchise or are already in the franchise business, you should review any Franchise Agreement and Franchise Disclosure Documents with an attorney familiar with franchise law. Have you ever experienced a territorial issue with your franchise or business, feel free to comment or share your experience?
As I’ve been watching the changes in the in-home movie rental business and the 
