A Protected Area is a specific geographic territory granted to a franchisee within which the franchisor agrees not to establish or license another franchise or company-owned location. In franchising, a protected area safeguards a franchisee’s market from direct competition within the same brand.
In a franchise relationship, a protected area—also called a “protected territory” or “exclusive territory”—defines the geographic boundaries where the franchisee has certain competitive protections from encroachment by the franchisor or other franchisees. The size and nature of the protected area vary depending on the franchise model, population density, and market potential. It may be defined by city limits, ZIP codes, miles of radius, or specific demographic metrics.
While a protected area prevents the franchisor from opening another unit of the same brand within the defined territory, it does not usually guarantee exclusivity against competing brands or online sales. The Franchise Agreement should clearly define the extent of these protections, including exceptions such as national accounts, e-commerce sales, or special distribution channels. Franchisees value protected areas because they provide operational stability and confidence in their ability to build a loyal customer base without internal competition from the same brand.
Please see “Exclusive Territory.”
| Type | Description | Typical Use |
|---|---|---|
| Exclusive Territory | Franchisor agrees not to operate or license another location within the area. | Traditional brick-and-mortar retail or service franchises. |
| Protected Territory (Limited Exclusivity) | Franchisor may operate under certain exceptions, such as e-commerce or national accounts. | Common in service, fitness, and mobile-based franchises. |
| Non-Exclusive Territory | No restrictions; franchisor can open other units nearby. | Usually applies to low-cost or home-based franchise models. |
| Area Development Territory | Franchisee receives rights to open multiple locations within a defined region. | Used for multi-unit or regional expansion strategies. |
The concept of a protected area emerged during the early years of modern franchising in the 1950s and 1960s, as franchise systems expanded rapidly across the United States. Early franchisees demanded territorial protections to prevent the franchisor from opening competing stores nearby, which could dilute their customer base. Over time, courts and regulators emphasized the need for clear contractual definitions to prevent disputes over territorial rights. Today, territorial protections are standard in many Franchise Agreements, though the degree of protection varies significantly by brand and industry. Some modern systems rely on population-based territories, while others limit protections due to the rise of online and delivery-based commerce.
Also See: The Educated Franchisee, 3rd Edition
| Consideration | Explanation |
|---|---|
| Definition in the Franchise Agreement | The territory’s boundaries, rights, and limitations must be clearly defined in writing. |
| Encroachment Protection | Franchisee protection from other same-brand units operating too close. |
| Exceptions and Exclusions | May include online sales, institutional clients, or national accounts not restricted by territory. |
| Market Potential | Protected areas are often designed to match a minimum population or income base. |
| Dispute Resolution | Encroachment claims can lead to mediation, arbitration, or litigation if boundaries are unclear. |
'The Franchise Agreement granted the franchisee a five-mile protected area where no other locations could operate.'
'Encroachment disputes often arise when the franchisor opens a nearby unit that violates a franchisee’s protected area.'
'In mobile service franchises, the protected area is defined by ZIP codes to ensure exclusive coverage.'
A protected area defines the geographic boundaries within which a franchisee is safeguarded from direct competition from the same brand. It is a crucial part of the Franchise Agreement, ensuring fair market access and investment protection. Clearly defined and legally enforceable protected areas help prevent territorial conflicts, foster strong franchise relationships, and contribute to balanced system growth.
