Franchise growth is all about strategic expansion—and few areas demand more clarity than how territories are defined in your FDD. Item 12 of the Franchise Disclosure Document (FDD) is where franchisors lay out the rules of the road for franchisee territories, including whether a franchise is for a specific location and whether territories are exclusive, non-exclusive, or protected.
At Zors, our franchise intelligence platform empowers franchisors to scale smart—and that starts with clear, compliant documentation. In this blog, we unpack the nuances of Item 12 and offer guidance on how to communicate territorial rights effectively.
Item 12 of the Franchise Rule requires franchisors to disclose how franchised locations are approved and define the scope of certain territorial rights.
Whether the franchise is for a specific location or a location approved by the franchisor
Whether there is any minimum territory granted (a distance sufficient to hold a certain population, a minimum radius, etc.)
Whether a franchisee can relocate
Whether the franchisee has rights of first refusal or similar expansion rights
Whether the franchisor grants an exclusive territory
Whether the franchisor restricts how franchisees solicit or accept orders
Whether the franchisor competes with franchisees or plans to compete with them using another trademark.
This section is often scrutinized by potential franchisees, attorneys, and consultants. Being transparent and compliant here builds trust and reduces friction during franchise sales. Clarity is key in Item 12 and the franchise agreement.
The two fundamental questions Item 12 presents are:
Franchise territories can be broken down into two categories -- Exclusive and Non-Exclusive. Understanding the difference is key when developing a territory strategy.
In an exclusive territory, the franchisor agrees not to operate or allow others to operate a competing business under the same brand (or sometimes any brand) within the designated area.
Helps franchisees feel secure in their market
Can lead to faster buy-in from prospects
Clear market accountability
Helps avoid oversaturation or franchisees stealing sales from each other
Supports localized marketing efforts
Can justify higher buy-in
Limits franchisor flexibility in the market
Potential conflicts with multi-channel growth opportunities
Can be difficult to enforce in service-based or mobile based models
Can complicate online sales
Can lead to disputes between neighboring territories for advertising, delivery, or even local SEO impact
Can increase legal risks
When a franchisor reserves the right to open company stores, grant other franchises, use other channels of distribution, or operate competitive brands that compete directly against the franchisee within that same area - that is referred to as a non-exclusive territory.
A non-exclusive territory may or may not actually operate company outlets, franchise to others, or otherwise compete in the same area. Taking a hybrid approach or reserving certain rights will typically trigger the non-exclusive nature of the territory. Coming close to the line while claiming you grant exclusive territories can create legal risk, leaving many franchisors to utilize non-exclusive territories with certain limited protections.
When no exclusive rights are granted, the FTC requires specific disclosure:
Required Verbiage (per FTC guidelines):
"You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control.
⚠️ Caution: Omitting this language is an immediate compliance red flag. It’s vital to include this exact statement if no exclusivity is granted. A common mistake business people make is removing this language because they do not like the way it sounds. This language is mandated and is designed to serve as a warning within the disclosure document.
Franchisor has maximum flexibility for expansion
Supports dense market penetration
Ideal for multi-channel or e-commerce models where geographic exclusivity is hard to define or difficult to enforce.
Reduces risk of disputes between neighboring franchisees
May deter prospects
Can lead to decrease in local marketing investment
May lead to ambiguity in accountability
Can lead to cannibalization
Some franchisors offer what are called “protected territories”—a blend of exclusivity and flexibility. In these systems, the franchisee has protection from encroachment by other franchisees or corporate locations, but only within certain channels or conditions.
A franchisee may have exclusive rights to brick-and-mortar operations in a zip code but no protection from e-commerce or delivery platforms.
The franchisor may retain the right to sell through national retailers, operate at non-traditional locations within a territory, serve customers in the territory through other means, or operate under different brand names.
The franchisor may have the ability to reduce the size of the territory or eliminate rights if certain minimum performance metrics are not met.
🛠️ Industries that may use protected territories:
Fitness (e.g., group training franchises with hybrid delivery)
Health & wellness (with both in-person and online components)
Food & beverage (with delivery apps and ghost kitchens)
Home services (with national accounts)
Making smart informed decisions is important when it comes to defining territory rights within your FDD and when it comes to putting practices into action. We encourage responsible franchising.
Zors excels at taking your vision and making it a reality through intuitive territory mapping tools providing you with instant access to charts, graphs, tables, and data at the territory level.
Our intelligence platform helps franchisors:
Define territories using economic, demographics, drive-time, and household data
Instantly visualize data and quickly produce reports
Manage two different territory types or levels of protection on the same map (smaller unit level coverage and larger area level coverage)
Track tasks with an integrated task board
Connect contracts with territories, people, companies and vendors
📊 Pro Tip: Use Zors' Franchise Mapping to visualize overlapping delivery zones and adjust protected rights accordingly. As a compliance and safety feature, Zors also includes a built in over-lap warning designed to help protect your franchise system from inadvertently selling territories with conflicting rights.
Territory rights are one of the most sensitive—and strategic—elements in your FDD. Whether you’re granting exclusivity, protection, or going fully non-exclusive, what matters most is clarity and compliance.
When you pair sound legal strategy with real-time franchise intelligence, you empower your system to grow confidently and equitably. Working with a franchise attorney and providing your team with the right tools is an essential part of responsible franchising.
🧠 Want help refining your Item 12 language or visualizing smarter territories?
Let Zors show you how intelligent territory mapping leads to stronger unit economics and happier franchisees.
🛑 Disclaimer:
The information provided in this blog post is for general informational purposes only and is not legal advice or a substitute for consulting with a qualified attorney. Franchise law is complex and highly nuanced, governed by both federal regulations and varying state-specific laws. Proper legal guidance requires a detailed understanding of these rules as applied to your specific circumstances. You should not act—or refrain from acting—based on anything in this post. You should consult your franchise attorney for legal advice.
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