Are you a business owner in the franchise industry? If so, it’s important to understand the concept of franchise encroachment and how it can affect your business. In essence, franchise encroachment occurs when a franchisor deliberately invades a franchisee’s territory or undermines the franchisee’s position in the market. However, this topic is rarely simple, often moving beyond the explicitly stated terms in a franchise contract into the areas of implicit rights of the franchisee to protected market that is free from cannibalization by the franchisor.
Definition of franchise encroachment
Encroachment is defined as “a real estate situation where a property owner violates contractual property rights by unlawfully entering, building, or extending structures onto their neighbor’s land without permission.”
Franchise encroachment, however, is defined as an attempt by a franchisor to expand into a franchisee’s territory or to encroach on the franchisee’s rights and obligations as stated in the franchise agreement. It is a violation of the franchising agreement between the franchisor and franchisee and is considered to be a form of unfair competition.
Types of franchise encroachment
Franchise encroachment can take many forms, including:
- Intrusion of Franchisor into Franchisee’s Territory: This occurs when a franchisor attempts to expand into a territory that has already been promised to a franchisee.
- Franchisor Selling Same or Similar Products: This occurs when a franchisor begins to sell products that are similar to those sold by the franchisee. This can create competition between the franchisor and franchisee and can lead to a decrease in sales for the franchisee.
- Franchisor Failing to Follow Franchise Agreement: This occurs when the franchisor fails to abide by the terms of the franchise agreement, such as failing to provide adequate support or advertising. This can put the franchisee at a disadvantage and lead to a decrease in sales.
How to deal with franchise encroachment
Franchise encroachment can have significant impacts on a franchisee’s business as well as their relationship with the franchisor. If possible, sit down with a lawyer to review your franchise agreement before you sign anything. Many issues that franchise owners think encroach upon their business territory are not true disputes when compared with the terms in the agreement, so be clear about what you’re signing.
Remember, too, that while the franchisor may be in violation of your agreement, encroachment is not necessarily illegal. Franchise encroachment is sticky topic, and because it can have serious consequences for your business, it’s best to talk to a franchise lawyer before raising any complaints. If you have doubts about the terms of your franchise agreement and the acts of the franchisor, contact an experienced franchise lawyer who can help protect your rights.