Franchise Territory

A franchise territory is the geographic area in which a franchisee is authorized to operate and, in many cases, where the franchisor agrees not to open competing locations. Territory definitions vary significantly: some franchisors grant exclusive territories with specific boundaries (population-based, zip code-based, or radius-based), while others offer non-exclusive territories or no territorial protection at all. Disclosed in Item 12 of the FDD, territory terms are among the most critical factors affecting a franchisee's long-term revenue potential and competitive exposure. Encroachment (when a franchisor allows a new location too close to an existing one) is one of the most common sources of franchisee-franchisor disputes.