Franchise Territory Rights: What 259 FDDs Grant and Reserve

How franchise territory rights are disclosed in FDD Item 12

Franchise territory rights are disclosed in Item 12 of every Franchise Disclosure Document. The FTC rule (16 CFR 436.5(l), 2026 edition) makes each franchisor state whether the franchise is for a specific location, any minimum territory, relocation and expansion conditions, options or rights of first refusal, whether the territory is exclusive, which sales channels it reserves inside the territory, and any similar business it runs under another brand.

If a franchisor does not grant an exclusive territory, the rule requires a fixed sentence: “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.” FTC staff FAQ 25 reads exclusive territory as an area where the franchisor promises to open neither a company-owned nor a franchised same-brand outlet. A franchisor may still keep online sales and other brands inside an exclusive territory, because Item 12 discloses those separately.

We read Item 12 in 259 FDDs filed with the Minnesota Department of Commerce and coded what each grants and keeps. The sample matches the site’s royalty and agreement terms datasets, so the results can be joined brand by brand.

Territory types: protected, but rarely exclusive

60.2% of 259 Minnesota-filed FDDs issued 2025 to 2026 (156 FDDs) promise a protected area while printing the no-exclusive sentence. 13.5% (35) protect an area without the sentence, the pattern FTC staff guidance reserves for exclusive territories; 7.3% (19) offer limited protection and 18.9% (49) offer none.

The disclaimer is therefore not a sign that no area is protected. Of the 221 FDDs that print it, 173 (78.3%) still promise an area. Labels add to the confusion: 47 FDDs (18.1%) call the area exclusive somewhere in Item 12, and 13 of them also print the no-exclusive sentence. NASAA told the FTC in 2019 that franchisors use terms such as protected territory and limited exclusive territory and asked for plainer disclosure.

Business model matters. 77 service-area franchises (mobile or home-based) almost always receive a territory: only 5 have none. Of 180 site-based franchises, 42 have none.

Territory protection by sector

Protection varies widely by sector. Lodging is the outlier: 14 of 18 hotel FDDs (77.8%) grant no territorial protection (protection offered only at the franchisor’s option counts as none), and 2 more offer only limited protection. Business services (55.6% none), food and beverage (10 of 27, 37.0%) and retail (33.3%) follow. Fitness, health and wellness, home services, pet services and senior care protect every brand sampled.

NASAA wrote in 2023 that for food and beverage franchises a missing territory conflicts with franchisees’ expectation of at least a nominal one. In this sample, 63.0% of food FDDs grant some protection. For context on the food sector see restaurant franchise statistics. Sector counts are 17 to 27 FDDs each, so treat differences of a few brands with care.

How territories are defined

Of the 210 FDDs with any protection, 57.1% describe the territory by a population count, 51.9% by a radius, 42.9% by zip codes and 42.9% by a map or street boundaries. Many combine methods. Household counts (12.9%), business counts (4.3%) and drive time (2.9%) are rare.

85.2% state a number for the standard territory. The rule asks only for any minimum territory granted (436.5(l)(2)), and most numbers are written as typical or minimum figures that the franchisor sets before signing.

How big a franchise territory is

Where a radius is stated, the median smallest radius is 2 miles (79 FDDs; middle half 1 to 3 miles). Where a population is stated, the median smallest figure is 100,000 people (89 FDDs; middle half 50,000 to 250,000).

Site-based franchises use small circles: 78 state a radius, median 2 miles, and their median stated population is 75,000. Service-area franchises use larger population blocks: median 250,000 people across 36 FDDs, or a median 100,000 households where households are used. Urban territories are often smaller and some FDDs measure them in city blocks, which we left blank.

What franchisors keep inside the territory

A protected area usually blocks only one thing: another same-brand outlet of the same format. Of the 210 FDDs with protection, 92.9% keep the franchisor’s right to sell inside the area online, by catalog or by other direct channels; 91.4% keep the right to run or license businesses under other brands there; and 77.1% keep the right to buy competing businesses or chains that may already operate there.

Non-traditional venues (32.9%) and national or key accounts (30.0%) are reserved far less often. 95.2% reserve at least one of online sales, non-traditional venues or national accounts, but only 4.8% reserve all three. The median protected area carries 3 of the five reserved rights. Only 17 FDDs (6.6%) say the franchisee is paid anything when the franchisor sells into the territory.

Reservations follow FTC guidance. FAQ 37 (2012) says a franchisor that keeps non-traditional venues inside a territory must print the no-exclusive sentence. 39.1% of protected-with-disclaimer FDDs reserve such venues, against 8.6% of exclusive ones. Exclusive grants still keep online sales in 91.4% of cases, which FAQ 25 permits. The FTC’s own sample exclusive Item 12 reserves Internet and catalog sales, and its buyer guide warns that a protected territory may not stop the franchisor selling through its website or other retailers.

Conditions that can shrink or remove a territory

30.5% of protected territories (64 of 210) depend on a minimum performance requirement such as annual gross sales, customer counts or minimum royalties. In 46 FDDs (21.9%) a miss can shrink the territory or remove its protection; others allow termination or a shortfall payment.

33.8% let the franchisor change the territory for other reasons, such as population growth, transfer or its own discretion, and 13.8% say the territory can be redrawn at renewal. The FTC buyer guide also warns that a renewal may reduce the territory. Counting both, 53.3% of protected territories can change during or at the end of the term. Home services and senior care tie protection to performance most often (77.8% and 66.7% of their protected FDDs).

Relocation, expansion and selling outside the territory

86.1% of FDDs let the franchisee relocate with the franchisor’s approval; 10 do not permit it. Only 17 FDDs (6.6%) give an option or right of first refusal on more units near the territory. 61.0% stop franchisees marketing or selling outside their own territory without consent, rising to 94.8% of service-area franchises: the territory is a ceiling as well as a floor.

Territory radius vs non-compete radius

Joined to the site’s franchise agreement terms data (Item 17), the non-compete is usually wider than the territory. In the 77 FDDs stating both a protected radius and a post-term non-compete radius in miles, the median largest stated protected radius is 3 miles and the median non-compete radius is 15 miles; the non-compete is wider in 75 of 77. The median ratio is 5.0.

Among the 49 FDDs with no territorial protection, 27 (55.1%) still have a post-term non-compete. The cross-tab is labelled because it joins two separately coded datasets; it does not duplicate the non-compete analysis, which stays in the agreement terms report.

Federal disclosure, state encroachment rules

Federal law requires disclosure, not protection. In adopting the current rule the FTC declined in 2007 to mandate territorial terms, calling a protected territory a private contractual matter. A few states go further for franchises operated there. Iowa Code 537A.10 gives an existing franchisee a damages claim against a new same-brand outlet in unreasonable proximity unless an exception applies, such as a sales impact under 6 percent or reasonable territorial rights already granted. Washington RCW 19.100.180(2)(f) bars a franchisor from competing in an exclusive territory it specified in the agreement. This is a summary of statutes, not legal advice.

Franchise territory rights checklist for buyers

The data suggests reading Item 12 and the territory section of the franchise agreement with these questions. A franchise attorney can confirm what applies to a given contract.

1. Does Item 12 print “You will not receive an exclusive territory”? If so, what exactly is still protected, and against whom (company outlets, franchised outlets, both)?
2. How is the area drawn (radius, zip codes, population) and is a map attached before signing?
3. Which channels does the franchisor keep inside it: online sales, non-traditional venues, national accounts, other brands, acquired chains?
4. Is there a minimum performance requirement, and what happens on a miss: smaller area, lost protection or termination?
5. Can the area be redrawn at renewal, on transfer or for population growth?
6. How wide is the post-term non-compete compared with the territory (see Item 17)?
7. Can you relocate, and do you get any first right to nearby units?

For the wider buying process see buying a franchise and what a franchise consultant does; for costs that scale with territory size see franchise initial investment.

What the data supports, and where it stops

The brief expected most franchisors to grant some protected territory while reserving online sales, non-traditional venues and national accounts inside it, with a meaningful share giving no exclusive territory. The first and last parts hold: 81.1% grant some protection, 85.3% disclaim exclusivity and 18.9% grant nothing. Online reservations are near universal (92.9%). Non-traditional venues (32.9%) and national accounts (30.0%) are not majority practices. The reservations most protected areas share are other brands (91.4%) and acquired chains (77.1%).

Limits: the sample covers brands registered in Minnesota, capped per sector, so it is not a census of US franchisors. Item 12 describes rights, not how often franchisors use them. The ‘limited’ type and several reserved-right fields need judgment; the hand check below measures that error.