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But I've Got A Contract!

Think you're entitled to an exclusive territory? Think again.

Guess what? According to a recent court ruling, if your franchise agreement doesn't specifically grant you an exclusive territory, then suing the franchisor for encroachment if it develops units near yours is pointless.

A March ruling by the Eleventh Circuit U.S. Court of Appeals blew 1991's famous Scheck v. Burger King Corp. decision to oblivion by dismissing Burger King franchisee C.R. Weaver's encroachment lawsuit. A triumph for franchisees, Scheck decided that even if a franchise contract explicitly states the franchisee has no exclusive territory, the franchisor doesn't have the right to build units within a range harmful to the franchisee's sales.

Now, however, if a franchise owner has no contractual right to exclusive territory, the franchisor has no duty to cease or limit licensing franchise units in an area close to the franchisee's establishment.

"If you're interested in having some development rights or exclusive territory, you have to negotiate and receive that at the time you sign the agreement," says Howard Wolfson, Burger King attorney and partner in New York City law firm Whitman Breed Abbott & Morgan LLP.

Our advice: Always have your lawyer look over any contracts you intend to sign--and sign them with your eyes wide open.

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This article was originally published in the October 1999 print edition of Entrepreneur with the headline: But I've Got A Contract!.

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