Beyond the Binder: The Franchise Agreement Series Part 1

Grant of Franchise and Territory

What You Think You Are Getting vs What You Are Actually Granted

When most people imagine buying a franchise, they imagine ownership. A business. A protected area. A defined opportunity where effort equals upside and where the rules are known from the start.

The first place that belief begins to unravel is in the Grant of Franchise and Territory section of the franchise agreement.

This section often sounds simple and reassuring. It tells you that the franchisor is granting you the right to operate a franchised business using its trademarks, systems, and methods within a defined area for a specified period of time. That language feels comforting. It feels like a foundation.

In reality, this section is not about what you own. It is about what you are permitted to do, under what conditions, and for how long that permission can be maintained.

The Grant Is a License, Not Ownership

The franchise agreement does not grant ownership of the brand, the system, or even true independence over your operation. It grants a limited, conditional license to use intellectual property that the franchisor fully controls.

That license can be restricted, suspended, or terminated based on compliance with the agreement. The moment you fall out of compliance, the rights you believed you had can disappear quickly.

This matters because many franchisees mentally treat the grant as a business asset. Legally, it is permission. Permission that can be revoked.

Territory Is Often Defined, But Rarely Protected

Many franchise agreements include a defined territory. That definition might be based on miles, zip codes, population counts, or geographic boundaries. The existence of a defined territory often leads franchisees to believe they are protected from competition.

Protection and definition are not the same thing.

Most franchise agreements include extensive carve outs that allow the franchisor to compete with you inside your own territory in multiple ways. Common examples include
• Online sales
• Delivery platforms
• Catering
• National accounts
• Alternative formats
• Company owned locations
• Sales through affiliates or third parties

In many agreements, the franchisor reserves the right to profit from these channels without compensating the franchisee whose territory is being impacted.

You may have a territory on paper while the franchisor retains nearly unlimited freedom to operate around you.

Encroachment Is Often Contractually Permitted

Franchisees often believe encroachment is a violation. In many agreements, it is not.

If the agreement reserves rights broadly, which most do, the franchisor is not encroaching. They are exercising rights you already granted them when you signed.

This is one of the most painful lessons franchisees learn. What feels unfair, harmful, or damaging to your business may be fully authorized under the agreement.

Relocation and Reconfiguration Are Usually Not Your Choice

Some agreements allow the franchisor to require relocation, approve or deny relocation, or reconfigure territories as the system grows. This means your business location, customer base, or competitive environment can change without your consent.

The franchisor’s growth strategy almost always takes precedence over individual franchisee stability.

Reservation of Rights Is the Real Power Clause

Almost every franchise agreement includes a reservation of rights clause. This clause states that the franchisor retains all rights not expressly granted to the franchisee.

This is not filler language. It is one of the most powerful provisions in the agreement.

If a right is not clearly and explicitly given to you, assume it belongs to the franchisor. Silence favors the franchisor. Ambiguity favors the franchisor. Future business models favor the franchisor.

Technology changes. Consumer behavior changes. New revenue channels emerge. The reservation of rights clause ensures that those opportunities flow upstream unless the agreement specifically says otherwise.

What Franchisees Should Be Asking Before They Sign

Before signing a franchise agreement, franchisees should slow down at this section and ask hard questions.

• Is my territory defined or actually protected
• What carve outs allow the franchisor to compete with me
• Are online and third party sales included or excluded
• Can the franchisor place another unit near me
• Can the franchisor sell the same products through other channels
• What happens if the system evolves beyond today’s business model

If the answers are vague, broad, or deferred to the operations manual, that is not reassurance. That is risk.

Why This Section Sets the Tone for the Entire Agreement

The Grant of Franchise and Territory section tells you everything you need to know about the balance of power in the relationship.

It tells you whether the franchisor sees franchisees as protected partners or as expandable distribution points. It tells you how much flexibility the franchisor wants to preserve for itself. It tells you how much uncertainty you are expected to absorb in exchange for brand affiliation.

If you misunderstand this section, everything that follows becomes more dangerous.

In the next installment of Beyond the Binder, we will move into term and renewal and explain why a 10 or 20 year franchise term does not mean what most people think it means, and how renewal is often structured to quietly reset leverage back to the franchisor.

Before you move forward, sit with this reality. You are not buying a business in this section. You are accepting a set of permissions. And permissions can be changed, limited, or taken away.

Beyond the Binder exists so those truths are understood before signatures are applied.

The information provided in this article is for educational purposes and general public-interest reporting. It does not offer legal, financial, or investment advice. Franchise purchasers should consult qualified professionals before making decisions. Franchise Reality Check™ analyzes publicly available documents, including Franchise Disclosure Documents (FDDs), state regulatory filings, and court records. Under Oklahoma Statutes and applicable federal law, analysis of publicly filed franchise documents, commentary on matters of public concern, and reporting on franchise industry practices are protected forms of speech.