When Your Own Franchise Becomes Your Biggest Competitor: Understanding Territory Encroachment

Picture opening a franchise location, building up loyal customers over several years, and then watching the same brand open a second location three blocks away. Frustrating, right? This scenario, known as encroachment, is one of the most common disputes between franchisors and franchisees in Florida. Our West Palm Beach franchise law attorneys see it play out across industries, from fast food to fitness studios to auto services.

What Encroachment Actually Means

Encroachment happens when a franchisor allows a new unit, whether company owned, franchised, or even a sister brand, to open close enough to an existing franchisee that it eats into that franchisee’s customer base. It can also happen through online sales channels or delivery platforms that quietly siphon business away from a physical location without ever opening a competing storefront.

Your Franchise Agreement Is the Starting Point

Here is something many franchisees do not realize. Florida law does not automatically grant exclusive territory to franchisees. Whatever protection you have almost always comes from the language in your franchise agreement itself. If your contract spells out a protected radius or an exclusive market area, that language becomes the foundation of any encroachment claim. If it is silent or vague on territory, your options narrow considerably.

Where State Law Comes In

While territory rights are largely contractual, Florida franchisees are not without statutory protection. The Florida Franchise Act, codified at Florida Statutes Section 817.416, makes it unlawful for a franchisor to misrepresent the prospects of success, the required investment, or its plans to sell additional franchises or distributorships in an area the market cannot reasonably support. If a franchisor oversold a territory it knew could not sustain multiple locations, that misrepresentation can form the basis of a legal claim, including recovery of money invested and attorney’s fees.

Good Faith Still Applies

Even without an explicit exclusivity clause, franchise relationships in Florida are governed by an implied covenant of good faith and fair dealing. This means a franchisor cannot use technicalities in the agreement to deliberately undercut a franchisee’s business. Have you noticed language in your contract about how nearby units will be evaluated? That clause may matter more than you think if a dispute arises.

What To Do if You Suspect Encroachment

Start by pulling your franchise agreement and reviewing the territory and disclosure provisions closely. Document the impact on your sales once a new location or sales channel appeared nearby. Then get a legal opinion before assuming you have no recourse. Many franchisees walk away from strong claims simply because they never had the agreement reviewed by counsel familiar with Florida franchise law.

If you believe your franchisor has encroached on your territory or misrepresented the market when you signed on, do not wait until the damage is irreversible. At Pike & Lustig, LLP, we help franchisees and franchisors resolve these disputes, whether through negotiation or litigation. Reach out to our firm today to discuss your franchise agreement and your options.

Source:

flsenate.gov/Laws/Statutes/2023/0817.416