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Imagine your franchisor has just allowed another location of the same brand just two kilometers away from where you are. Now, you're worried about what this will do to business as this situation was never factored into your business plans or earnings projections.
If that's a scenario that sets your hair on edge, you need to look closely into the territory protections, if any, the Canadian franchises you are considering offer. These will be part of the franchise disclosure document (FDD), and you need to fully understand them before you decide to join a franchise.
What's in the FDD?
In the provinces with specific franchise legislation, FDDs must include descriptions of:
• Any exclusive territory you'll receive
• Whether the franchisor only allows continuation of this exclusive territory under certain conditions and under what type of circumstances it can be altered
• The franchisor’s policy on placing a new or incoming franchisee near another franchisee, distributor using the franchisor’s trademarks, corporate-owned locations and franchises given by the franchisor with similar products or services under another trademark.
You may also find this information in disclosures in provinces without specific franchise laws. If you can't find this in the FDD, ask the franchisor, but be sure to get the answer in writing and in an official format.
Territory types
A territory is usually set by geographical boundaries, such as a radius of so many miles or a postal code. Non-exclusive territory means you have no guarantee that the franchisor won't allow another franchisee or a corporate-owned location into your territory. Exclusive territory means the franchisor agrees it will not complete with you in your own territory.
However, your franchisor may still reserve the right to do some things in your exclusive territory that don't violate your exclusivity, and it might define situations in which you could have your exclusivity revoked or alerted, such as failure to meet set sales or growth goals. For example, the franchisor may retain the right to sell goods and services online to customers in your area.
Your territory exclusivity or lack thereof is a factor you need to weigh when you are deciding which franchise opportunity to pursue for your new venture. If you have any questions about the territory terms of your FDD, consider consulting with an attorney who is familiar with franchises and/or a business advisor for some more clarity so you're not caught off-guard after you open your doors.
