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Area of Protection

Area of Protection

Area of protection (AOP) is a negotiated geographic area of exclusivity that a new franchisee sets up with a franchisor that blocks new, competing units from being placed nearby without the franchisee’s approval. AOP agreements are critical when opening a new property says Nelson F. Migdal, co-chair of the hospitality practice at the law firm Greenberg Traurig. “If you’re building a new hotel, your AOP is of tremendous importance because you want to make sure you can protect yourself during a stabilization period,” says Migdal. He often recommends clients establish multiple AOPs to provide long-term protection for their investments. “The franchise agreement is normally going to define one protected area for 15 to 20 years,” he says. But franchisees can add a larger area for the first three years or so from the opening day that allows them to establish a presence in the market. “Think of it like concentric circles, with the smaller circle running through the remainder of the contract.”

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