Which party in a franchise relationship typically determines the territory served by a franchisee? 


Kubota Tractor Corp. makes farm, industrial, and outdoor equipment. Its franchise contracts allow Kubota to enter into dealership agreements with others at any location. Kejzar Motors, Inc., is a Kubota dealer in Nacogdoches, Texas and Jasper, Texas. These two Kejzar stores operate as one dealership with two locations. Kubota granted a dealership to Michael Hammer in Lufkin, Texas, which lies between Kejzars two store locations. Kejzar filed a suit in a Texas state court against Kubota. Kejzar asked for an injunction to prevent Kubota from locating a dealership in the same market area. Kejzar argued that the new location would cause it to suffer a significant loss of profits. [Kejzar Motors, Inc. v. Kubota Tractor Corp., 334 S.W.3d 351 (Tex.App.Tyler 2011)] 

Which party in a franchise relationship typically determines the territory served by a franchisee? 

Which legal principles come into play in this area? 

How do these concepts most likely apply in this case?


Which party in a franchise relationship typically determines the territory served by a franchisee?


You may be in the market for a franchise, and you’re wondering which party controls the territory where your business operates. The answer may be surprising: It depends on what’s written in the contract between franchisor and franchisee. But there are some exceptions!

It depends on the franchisor’s decision.

The franchisee’s territory is determined by the franchise contract and may be used to control costs as well as increase revenue.

The franchisor controls what domains a franchisee serves and how much they can charge for their services. If a company has several different franchises with different requirements, it may choose not to have one in your area because you are too close to another location or because there are already other companies nearby that could take over some of your territory if you were allowed to expand into it.

The law says that the franchisee’s location is based on the franchise contract, not on the relationship between the parties.

The law is clear that the territory is determined by the franchise contract, not by the relationship between the parties.

The franchise agreement is a contract and it must be interpreted according to its own terms. This means that if there’s a dispute about what was agreed upon in writing, you have to look at that language and figure out what it says rather than relying on some other factor like trust or goodwill (which can also be important).

If there’s a disagreement over territory, courts will look to the intent of the parties who entered into the agreement.

When it comes to determining where a franchisee should operate, courts will look to the intent of the parties who entered into their agreement. The court will consider factors like:

  • What was communicated by both parties?
  • How long was the agreement in effect?
  • What do you expect from your relationship with this particular franchisee and vice versa?

Usually it’s up to the franchisor to determine where its franchisees operate.

The franchisor has the right to decide where its franchisees operate.

Franchisees have the right to decide where they operate.

If a franchise agreement is signed, it states what territories each party will serve and how many franchises that party can own in those territories.


A franchise relationship is a business agreement in which one person (the franchisor) grants another person (the franchisee) the right to use the franchisor’s name, trademarks, and other intellectual property for a specified period of time. In exchange for these rights, the franchisor typically pays its franchisees an initial fee or royalty fee based on how much revenue they bring in during their first year with the company.

If there’s any dispute between the parties regarding whether or not they have been operating within their territories as agreed upon when signing their contract, then courts will look at what each party intended when entering into this type of agreement – not what either party thinks would be justifiable in today’s world!

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