In cooperation with Cerca, Cecile Peskine revisits, in an accessible way, the fundamentals of franchise law through videos.
« What does the exclusivity clause in a franchise agreement mean? Is it mandatory?
First, there is the business exclusivity clause. The franchisee is required to devote all of their business activities to operating the franchise concept. This ensures that they are a committed business owner. At the same time, it rules out investors. This clause is not systematic, but it can be found.
In practice, however, the franchisor may grant exemptions even when it is provided for.
The second type of exclusivity found in a franchise agreement is exclusivity related to supply. I will ask my franchisee to purchase products specific to the concept either exclusively from the franchisor or its listed suppliers, or on a quasi-exclusive basis. This commitment is regulated: a retailer cannot be required to purchase products only from one person if those products are not specific. Price competitiveness is also a factor. I cannot require my franchisee to purchase tomatoes and lettuce from the franchisor if I am ultimately selling them at a higher price than they could find locally near their home with equivalent quality.
This exclusive supply clause is justified by the specific nature of the products, which must meet the brand’s specifications, but also by a competitive price.
The third type of exclusivity relates to the exclusive territory granted to the franchisee. However, there is no law that requires the franchisor to grant franchisees an exclusive territory.
There is complete contractual freedom, but the franchise agreement must be as precise as possible:
– both in terms of the geographical territory it covers. I do not recommend drawing a radius around a point because it does not include streets or catchment areas, and it is often very imprecise from a legal standpoint and a source of conflict. What is really recommended is to take a map and delineate the boundaries of the exclusive territory. Or list the zip codes.
– Next, the contract must specify what is meant by exclusive territory. Generally, this is the franchisor’s commitment not to establish a franchisee in a given territory. However, the franchisor can still sell products via e-commerce, Amazon, or any other platform of their choice, even in the franchisee’s territory. This really needs to be specified, as it is a qualification that we bring to exclusivity. Another possibility that can be included in the contract is that the franchisor reserves the right to areas known as “travel retail.” Travel retail refers to areas located in train stations, airports, ports, etc., which the franchisor will reserve because they will be entrusted to partners who specialize in this field. Therefore, franchise agreements should include territorial exclusivity that excludes travel retail. Activities in supermarkets and hypermarkets can also be excluded from exclusivity. Today, the franchisor is developing a restaurant concept, a brand A. Tomorrow, it may well decide to develop a brand of products that will be found on supermarket shelves, and the franchisor must be able to distribute it without the franchisee being able to prevent it. »