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.
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.”
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The 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.
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.
