We’ve identified some of the most common causes of disputes that our dispute lawyers have come across when dealing with franchise disputes. Today we look at changes to territorial exclusivity rights.

Changes to territorial exclusivity rights

It’s sometimes the case that a franchise agreement will contain operational rights within an exclusive territory (in other words, a clause that grants the franchisee a form of exclusivity to operate a franchise of the franchisor’s network in a territory specified in the agreement). However, having territorial exclusivity rights in a franchise agreement does not preclude problems from arising and it’s important to highlight that the franchisor may at some point seek to make changes to the franchisee’s territory exclusivity. A dispute might therefore arise because:

The franchise is underperforming: This might lead the franchisor to look into its rights to sell to another franchise in a previously exclusive territory, should training and support not result in improved performance levels.

Demographical changes in the franchise territory: noteworthy changes within the exclusive territory could give rise to the franchisor seeking to divide up the territory or invite another franchise to open within the exclusive area, for example, if there is a significant increase in customers in the geographical area.

Encroachment by a neighboring franchisee in the same network: this can lead to disputes about which franchisee should be getting the business, requiring the franchisor to “arbitrate” between neighboring franchisees.