It is surprising how one little word can make quite a lot of difference! In most franchises franchisees are allocated a territory in which they operate and are authorised to seek customers. Sometimes that territory is referred to as “an area of prime responsibility” or a “catchment area” or some other language is used. In some franchises franchisees can operate anywhere in the UK and in relation to retail franchises where a franchisee operates from a shop, usually territories are not granted and, if they are, they are simply there to protect franchisees from “encroachment” with the opening of other shops too close to their existing shop.
In an exclusive territory the franchisor agrees that it will not itself trade in the exclusive territory and will not grant rights to anybody else to trade in the exclusive territory. In a sole territory the franchisor does not exclude the possibility that it might trade in the territory and is only guaranteeing that it will not grant any rights to trade to a third party.
One final word of warning, exclusive and sole territories are not quite as clear cut as they once were because under competition laws you can prevent a franchisee from actively marketing in a another franchisee’s territory, but you cannot prevent that franchisee from responding to unsolicited enquiries even if they emanate from another franchisee’s exclusive territory.
Written by: John Pratt
Partner, Hamilton Pratt