Franchise encroachment explained
Your territory is only worth what the agreement protects. Here is how encroachment happens and how to check your rights before you buy.
What is franchise encroachment?
How encroachment happens
- A new outlet opens close to, or bordering, your territory.
- The franchisor sells online or via delivery apps into your area.
- A company-owned store or a different channel serves your customers.
- Your territory was non-exclusive, so none of the above breaches the agreement.
What an exclusive territory really protects
An exclusive territory typically stops the franchisor granting another franchise in your defined area, but read carefully what it covers. Many agreements carve out online and other channels, so you can hold an exclusive physical territory and still face online competition from the brand itself. The definition of the territory, and the exceptions, are where the real protection lives.
Questions to ask before you sign
Confirm whether your territory is exclusive and exactly how it is defined; whether online, delivery and other channels are included or carved out; and what the franchisor may do near your borders. If the agreement leaves the franchisor free to compete with you through other channels, factor that into your revenue expectations, and take legal advice on the territory clause.
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Frequently asked questions
What is encroachment in franchising?
Encroachment is when a franchisor allows competition into your market that reduces your sales, such as a new outlet nearby or online and delivery sales into your area. Whether it is allowed depends on your agreement and whether your territory is exclusive.
Does an exclusive territory stop online competition?
Not always. Many agreements grant an exclusive physical territory but carve out online, delivery and other channels, so the brand can still sell into your area digitally. Check exactly what your territory clause covers before you sign.
How do I protect my franchise territory?
Before signing, confirm the territory is exclusive, how it is defined, and whether online and other channels are included. Get the answers in the agreement, and have a franchise lawyer review the territory clause. It is far harder to fix after you commit.
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