San Diego Franchises, Territories, and Non-Traditional Venues
Many franchise agreements provide and specify an exclusive geographic territory for the franchisee’s operation. This protects the franchisee from competition from another franchisee in the “system” and prevents abusive tactics and/or retaliation by the franchisor. It would be easy enough, for example, for franchisor to significantly undercut a franchisee by allowing one or two or more franchise locations to open near the existing one. Exclusive territories help prevent such predatory behavior and protect the investment being made by the franchisee.
However, generally, the franchisor reserves to itself all other rights that do not meet the definition of “franchise location.” Among the important examples are sales vectors like online sales and what are generally called non-traditional venues. Examples of non-traditional venues would be sporting and/or concert venues, carts or small stations in shopping malls, street fairs, seasonal/holiday pop-up shops, and mobile “franchises” like food trucks and carts. If tapped by your franchise, a significant bump in sales and revenue can be achieved by use of these types of non-traditional venues. If you are considering buying a franchise, careful attention should be paid to how “franchise location” is defined and what the franchise agreement says (if anything) about non-traditional venues and sales methods. You should seek the advice and guidance of an experienced San Diego franchise attorney. Here are some tips.
If the franchise agreement defines “franchise” narrowly as a fixed store in a permanent location, you could explore shifting the definition from defining the type of store to defining the activity — selling franchise goods and services. This would then automatically cover any type of store, shop, vehicle or anything else, permanent or temporary, that might compete with your franchise in the geographic area.
More directly, you might try and negotiate provisions that cover non-traditional venues. For example, the franchisor might agree to disallow others to operate mobile or temporary “locations” but might disagree with respect to sporting/concert venues. With respect to nontraditional venues, franchisors have two sets of concerns – profits for the franchisor and capacity limitations with respect to the franchisee. That is, the franchisor may want to keep for itself the sales/profits to be had from non-traditional venues or be concerned that your location is too small to provide the necessary product for a sporting/concern event. Depending on the reasoning, there may or may not be room for negotiation.
Note that the goal is not to prohibit temporary, mobile, or “mini-locations,” but to prevent others from operating them to the sales disadvantage of your location.
One other strategy is to negotiate a right of first refusal with a reasonable notice period depending on the proposed venue/circumstance. If your franchise is not prepared, cannot afford the startup costs, or is otherwise not interested, then the non-traditional venue can be operated by the franchisor or another franchisee.
Contact San Diego Corporate Law
For more information, contact franchise law attorney Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has extensive experience helping San Diego residents buy and sell their franchises. Mr. Leonard can be reached via email or by calling (858) 483-9200. San Diego Corporate Law proudly provides legal services to business owners in San Diego and the surrounding communities. Like us on Facebook.