Protected Area

 

✅ Short Definition

A protected area is a defined geographic territory granted to a franchisee in which the franchisor agrees not to establish another franchise or company-owned location. In franchising, a protected area helps safeguard the franchisee’s investment by reducing direct competition from within the same brand. The scope and terms of a protected area are outlined in the Franchise Agreement.

🧾 Long Definition

In the franchise relationship, a protected area (also known as an exclusive or designated territory) refers to a specific region, neighborhood, or trade area that the franchisor grants to a franchisee with certain exclusivity rights. Typically, the franchisor agrees not to operate or license another franchise or company-owned unit within that territory during the term of the Franchise Agreement. The exact boundaries, protections, and exceptions are defined in the Franchise Agreement and may vary widely depending on the brand and industry.

A protected area is designed to give franchisees confidence that their investment won’t be undermined by internal competition. However, the scope of protection may be limited. For example, franchisors often reserve the right to sell products through alternative channels (e.g., e-commerce, third-party delivery apps, or national accounts) even within a franchisee’s protected area. Some franchises offer exclusive territories, while others only provide limited or non-exclusive areas, or none at all. Therefore, it's essential that franchisees fully understand the terms and limitations of their protected area before signing the Franchise Agreement.

Also see “Exclusive Territory.”

Learn more about franchising in The Educated Franchise - 3rd Edition

🕰️ History and Usage

Definition of Protected AreaThe concept of a protected area gained traction in franchising as brands expanded in the mid-20th century. Early franchisees often sought geographic exclusivity as a safeguard for their local business, especially in retail and food service. In response, franchisors began offering protected territories as a way to attract quality operators and minimize conflicts between franchisees.

Over time, as technology and e-commerce transformed consumer behavior, the interpretation of “protection” evolved. Many modern franchise systems include carve-outs that allow sales through websites, apps, or non-traditional venues even within a protected area. As a result, the term “protected area” no longer guarantees total exclusivity, making it more important than ever for franchisees to review the fine print and consult with legal counsel.

❓ Five Common Questions About Protected Area
  1. What is a protected area in a franchise agreement?
    It’s a defined geographic region where the franchisor agrees not to place competing franchise units or company-owned locations.
  2. Does a protected area mean complete exclusivity?
    No, most agreements include exceptions for online sales, third-party delivery, or special channels.
  3. Is a protected area guaranteed in every franchise?
    No, some franchisors do not offer territorial protection at all, especially in dense or urban markets.
  4. How is a protected area defined?
    It may be defined by zip codes, city limits, radius from a specific point, or other geographic markers.
  5. Can a franchisor change the protected area later?
    Only if the Franchise Agreement allows it; otherwise, it remains fixed during the term unless amended by both parties.
📝 Examples of Common Usage for Protected Area
  • 'The franchisee was granted a protected area covering five zip codes, ensuring no other locations could operate within that territory.'
  • 'While the protected area limited physical store competition, it did not restrict online orders fulfilled from other regions.'
  • 'Disputes arose when a new franchise opened just outside the original protected area boundary.'
📌 Summary

A protected area is a key provision in many franchise agreements, offering geographic safeguards to franchisees by limiting internal competition. While it can provide meaningful protection, the definition and scope vary by franchisor and must be carefully reviewed. Understanding the limits and conditions of a protected area helps franchisees make informed decisions and protect their market position.

Buying a Franchise? Let the Franchisee Resource Center Help
Get Help
Review Hundreds of FDD’s from top franchises - view the site.
View FDDs
You can buy & download current FDD’s in the industry in one place!
 Buy FDDs
The Insiders Guide | Find the Perfect Franchise for you
Buy the 3rd Edition
© 2021 | The Educated Franchisee | All Rights Reserved
Powered by Saint George