What is the role of the Subfranchisor in defining the Exit protected territory?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
ent and agrees to immediately notify Subfranchisor of any changes in the information through the term of this Agreement.
2. GRANT OF FRANCHISE
2.1. Grant of Franchise.
Subfranchisor grants to Franchisee, and Franchisee accepts, the right to use the federally registered service mark "EXIT" and such other Proprietary Marks (as defined in Section 43 of this Agreement) as Subfranchisor may designate from time to time for the purpose of operating a real estate brokerage/real estate service office within the specific geographic area (the "Protected Territory") outlined in the Description of Protected Territory (Schedule 3 of this Agreement) during the term of this Agreement, upon the terms and conditions of this Agreement and in accordance with guidelines established by Subfranchisor and EXIT (the "Franchise"). This grant is conditioned upon (i) Franchisee obtaining and maintaining a valid real estate broker's license in the state containing the Protected Territory to enable Franchisee to perform the full range of real estate services to be provided under the System, (ii) Franchisee not defaulting under this Agreement, and (iii) this Agreement not being terminated, canceled or abandoned.
2.2. Exclusivity
- (A) So long as Franchisee is not in breach of this Agreement, neither Subfranchisor nor EXIT shall establish another real estate service Franchise or EXIT owned real estate service office within the Protected Territory using the Proprietary Marks.
- (B) In the Event of Default (which is not timely cured), then this Agreement shall automatically become nonexclusive and Subfranchisor, in addition to all of its other rights and remedies set forth in this Agreement, will have the right to own, operate, or sell franchises within the Protected Territory.
2.3. Conditions to Exclusivity
- (A) Franchisee is not prohibited from listing and selling property or representing clients outside the Protected Territory. Subject to any restrictions or limitations placed upon it by State licensing authorities, Franchisee is free to deal with property and/or representation of clients at any location within the state. Likewise, other EXIT franchisees may list and sell property or represent clients domiciled in the Protected Territory.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the Subfranchisor plays a role in defining the protected territory granted to the franchisee. The Franchise Agreement between the Subfranchisor and Franchisee grants the franchisee the right to operate a real estate brokerage office within a specific geographic area, referred to as the "Protected Territory." This territory is outlined in Schedule 3 of the Franchise Agreement, called the "Description of Protected Territory." The franchisee's right to use Exit's service mark for operating their business is subject to the terms and conditions of the agreement and guidelines established by both the Subfranchisor and Exit.
Specifically, the document states that the franchisee's right to operate within the protected territory is exclusive, meaning that neither the Subfranchisor nor Exit can establish another real estate service franchise or Exit-owned real estate service office within that territory, as long as the franchisee is not in breach of the agreement. However, this exclusivity is conditional. If the franchisee defaults on the agreement and fails to correct the default in a timely manner, the agreement automatically becomes nonexclusive. In such a case, the Subfranchisor has the right to operate or sell franchises within the previously protected territory.
Furthermore, the Subfranchisor has the right to modify the protected territory under certain conditions. If a franchisee fails to correct an alleged breach of the agreement within the specified time after receiving written notice from the Subfranchisor, the Subfranchisor can either terminate the territorial exclusivity or reduce the size of the protected territory. This highlights the Subfranchisor's significant control over the protected territory and the importance of adhering to the franchise agreement to maintain exclusivity and the original territory size. Schedule 3 of the franchise agreement also requires the Subfranchisor business entity to sign and date the agreement, along with providing the territory name, grid population, minimum office space requirement, and geographical boundaries of the territory.