In Short
- Territorial rights vary by agreement, so check whether your area is exclusive or protected and review any exceptions.
- If encroachment occurs, document the issue clearly and raise it with your franchisor professionally.
- If unresolved, the Franchising Code outlines a formal dispute resolution process, which includes mediation and potential legal action.
Tips for Businesses
Before escalating a territorial dispute, ensure you thoroughly understand your franchise agreement, particularly any exclusions. Keep detailed records of any encroachment and your communications. Approaching your franchisor with clear evidence and following the Franchising Code’s dispute process gives you the best chance of resolving the issue without harming the relationship.
Territorial encroachment is one of the most challenging issues that franchisees face, potentially undermining your business investment and competitive position. When another franchisee, the franchisor, or an unauthorised party begins operating within your designated territory, it can directly impact your customer base and revenue. While the frustration is understandable, taking the right approach to addressing encroachment is crucial for achieving a successful resolution.
This article outlines the key steps to protect your territorial rights. It covers how to review your franchise agreement, record any encroachment, and pursue formal dispute resolution under the Franchising Code of Conduct. A clear and structured approach will help you resolve disputes effectively and maintain a healthy relationship with the franchisor.
When bringing on board new franchisees, it is important to negotiate agreements that strike a balance. This factsheet explains how.
Understanding Your Territorial Rights
Most franchise agreements include territorial provisions that grant franchisees exclusive or protected rights within a defined geographic area. The franchisee’s territory is usually defined by postal codes, street boundaries, or a set distance from the business location. However, the specific language in your franchise agreement determines the level of protection you have over your territory.
The type of territory designation directly affects your level of protection. Exclusive territories provide the strongest safeguards, preventing the franchisor from establishing competing outlets or granting rights to other franchisees within your area. Protected territories offer some security but may come with expectations, such as online sales or specific outlet types. Understanding which type of territory you hold is the first step in determining whether encroachment has actually occurred.
Many territorial rights are more complex than they first appear. Your territorial rights may only apply to marketing, not to all operations or customer service. Even with exclusive marketing rights, the franchisor or other franchisees may still serve existing customers or run parts of their business in your territory.
Initial Communication with the Franchisor.
Once you confirm that encroachment has occurred based on your territorial rights, your first step should be to contact your franchisor directly. Whether the encroachment involves the franchisor opening a competing location, granting rights to another franchisee, or allowing unauthorised marketing activities in your territory, approaching the franchisor professionally and promptly shows good faith, creating a documented record of the issue.
When making your initial contact, provide clear, specific evidence of the encroachment, including photographs, addresses, advertisements, or other documentation that supports your claim. This evidence-based approach strengthens your position and also helps the franchisor understand the scope and nature of the territorial violation. Include details such as the exact location of the encroaching activity, the dates when you first noticed the violation, and how it conflicts with your territorial rights as outlined in your franchise agreement. By presenting a well-documented case from the outset, you build credibility and often encourage a more productive discussion towards resolution.
Continue reading this article below the formPursuing Formal Dispute Resolution.
Hopefully, your initial discussion with the Franchisor will be sufficient, and they will take the necessary action to enforce your territory rights and prevent any encroachment.
However, if your franchisor fails to take appropriate action to address the territorial encroachment after your initial communication, and you remain confident that your rights are being violated, you may need to begin the formal dispute resolution process outlined in the Franchising Code of Conduct. Under section 72 of the Code, you must provide your franchisor with written notice that specifically outlines three key elements:
- the nature of the dispute, including details of how your territorial rights have been breached;
- what outcome you want, such as stopping the encroaching activity or receiving compensation for lost revenue; and
- what action you believe will resolve the dispute.
Once you have served the dispute notice, both parties must try to resolve the matter through negotiation for a period of 21 days. If no resolution is reached during this time, the Code outlines a clear pathway through Alternative Dispute Resolution (ADR) processes, including mediation, and possibly arbitration if both parties agree. These formal processes offer franchisees significant procedural protections and can provide an effective way to resolve territorial disputes when direct negotiation fails. The details of navigating the ADR process under the Franchising Code involve detailed procedural requirements and strategic considerations that require a separate, in-depth discussion. You can read more here.
Considering Legal Proceedings
If the ADR process does not resolve your territorial dispute, you may pursue formal legal action through the courts. Legal action is a last resort to enforce your territorial rights. You may seek an injunction, claim damages, or require the franchisor to follow the agreement’s terms. However, litigation is risky. It can be costly, time-consuming, and unpredictable—depending on your agreement’s wording and the strength of your evidence.
We strongly recommend that you seek legal advice from a solicitor who specialises in franchise law before starting court proceedings. A qualified legal professional can assess your case, estimate potential costs and timeframes, suggest alternative strategies, and help you understand the full implications of taking legal action against your franchisor.
Key Takeaways
When dealing with territorial encroachment, your success depends on careful preparation and strategic action. Start by reviewing your franchise agreement to understand your territorial rights. Then document any encroachment with clear evidence before approaching your franchisor professionally. If direct negotiation fails, the Franchising Code of Conduct offers structured dispute resolution processes that provide cost-effective alternatives to litigation.
Essential steps to remember:
- review your franchise agreement carefully to understand your territorial rights and any exceptions;
- gather clear evidence of the encroachment, including photographs, locations, and dates;
- approach your franchisor professionally with well-documented complaints before escalating;
- follow the formal dispute resolution under the Franchising Code if discussions do not work;
- seek qualified legal advice early to evaluate your options and the strength of your case; and
- keep detailed records of all communications throughout the process.
By understanding your rights, following the correct procedures, and seeking appropriate advice, you can protect your territorial interests while maintaining your franchise relationship where possible.
If you need assistance protecting your territorial rights, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Start by reviewing your franchise agreement to understand your territorial rights and any exclusions. If you believe encroachment has occurred, gather evidence (e.g., photos, locations, dates) and raise the issue professionally with your franchisor. If unresolved, the Franchising Code of Conduct provides a formal dispute process, including mediation and potential legal remedies.
Under the Code, you can serve a dispute notice outlining the breach, the outcome you want, and how it can be resolved. Both parties must then attempt to negotiate for a period of 21 days. If no agreement is reached, you can move to formal mediation or, in some cases, arbitration or court proceedings.
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