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risk management measures – such as notice periods and operational safeguards – to prevent unfair competition. Franchisees may well be allowed to market or deliver outside their territory, but clear communication is essential to avoid market overlap.” How do territorial rights typically work in non-compete terms? The ability for franchisors to open competing units depends on the franchise agreement. “If the agreement grants exclusive territorial rights, the franchisor cannot open another unit –whether franchised or corporate- owned –within that territory without breaching the contract,” highlights Emily. However, if the agreement provides only ‘sole’ rights, the franchisor can operate its own outlet in the area but cannot appoint another franchisee. Clarity in the agreement’s wording is crucial to ensure franchisees are properly protected. “Territorial rights in franchise agreements often come with non-compete provisions, which limit internal competition,”Maria points out. “These rights typically provide franchisees withmarket protection, ensuring no competing franchise units or head-office- owned outlets can operate within their designated area. This protection supports franchisees in building their business and brand without undermining their efforts through internal competition. Some agreements even extend these protections to online sales or delivery services marketed under the franchisee’s local operation.” Non-compete clauses must comply with statutory requirements, like the Unfair ContractTerms Act 1977 and competition laws, ensuring they are not unfairly restrictive. If the territorial clause is too broad, it could be challenged in court, weakening the franchisee’s protection. “For these clauses to be effective, theymust be precisely drafted to avoid ambiguity,”Maria continues. “If an exclusivity clause is ambiguous or overly broad, the franchisee’s protectionmay be weakened.” Encroachment disputes arise when a franchisor or another franchisee operates in or near a protected territory, drawing customers away. This can be through new physical locations, online sales, or indirect competition. “If the agreement guarantees exclusivity, the franchisee can seek legal remedies such as damages or an injunction to stop the encroachment. However, if the agreement is vague, legal options may be limited. Strong, clear contracts are the best protection against such disputes,” advises Emily. How do territorial rights work with remote franchise models? In remote franchise models, such as those involving virtual assistants or digital marketing, territorial rights are defined by market segments or customer bases rather than geographic areas. Some franchisors manage this centrally, while others allow franchisees to freely compete for digital customers. “Franchise agreements should clearly outline how leads and online sales are allocated to avoid disputes,” Emily recommends. “Franchise agreements often include provisions for assigning customers in an online environment,” explains Maria, adding that if services or products are purchased directly from the franchisor’s website, the franchisor may designate customers to specific franchisees based on criteria like location, service type, or demographics. “This approach balances flexibility with franchisee protection, ensuring fair distribution of business even when territorial exclusivity isn’t granted.” Alternatively, franchisors may adopt an open territory model, where franchisees aren’t assigned specific geographic areas. “In this approach, franchisees can solicit customers from anywhere within the franchisor’s market reach, competing for digital customers with other franchisees,” Maria concludes. “This model removes traditional territorial boundaries, offering less protection but more freedom.” Territory traps: what to watch out for MariaMisyurina warns that unclear territorial terms can leave franchisees vulnerable to competition, market dilution, and lost revenue. Watch out for these pitfalls. Overly broad Franchisors risk granting large exclusive territories to franchisees who fail to develop them. Many agreements allow franchisors to withdraw exclusivity if performance targets aren’t met. Franchisees should ensure territorial changes are a last resort after all other options have been exhausted. Inadequate restrictions If the agreement doesn’t clearly restrict the franchisor from opening additional outlets, franchisees may face internal competition. Risk management should be in place before expansion is permitted. Unrestricted selling or delivery Such clauses allow franchisors to sell or deliver products anywhere, eroding a franchisee’s exclusive rights. This can lead to market cannibalisation, where franchisees lose sales to the franchisor’s own outlets or delivery services. Competing brand acquisition If a franchisor can acquire a competing brand within or near a franchisee’s territory, it can create direct competition and dilute the franchisee’s market. Beyond competition, it may even allow re-branding of the acquired business, confusing customers and undermining local brand presence. 31 WHAT-FRANCHISE.COM Ins ights