FDD Item 12
Territory
FDD Item 12 discloses the territorial rights granted to the franchisee — whether the territory is exclusive, the methodology for defining it, any reservations of rights by the franchisor, and the franchisee's rights to operate or develop additional units.
Why It Matters
Item 12 defines what geographic protection the franchisee has and what protection they don't have. Territory disputes are one of the most common sources of franchisor-franchisee litigation; reading Item 12 carefully prevents most of them.
What Item 12 Must Disclose
- Whether the territory is exclusive, protected, or non-exclusive
- Methodology for defining territory (radius, ZIP codes, population, drive-time)
- Franchisor's reserved rights to operate or grant other franchises in the area
- Franchisee's right to relocate or open additional units within the territory
- Channel rights — does the territory include internet, catalog, and non-physical sales?
What to Look For
- Non-exclusive or 'protected' (not exclusive) territories — the franchisor can place additional units nearby
- Channel carve-outs — internet, catering, and B2B sales may be reserved by the franchisor
- Performance requirements that, if missed, allow the franchisor to redefine the territory