Encroachment is a term used in the franchise industry to describe sales and revenues being transferred from one location to another because of their proximity. If a new location is established near an existing franchise location, then it is possible that existing sales will be transferred from the old location to the new. Litigants sometimes claim the encroachment is so extensive so as to threaten the viability of the existing location. In these instances, claims have been asserted for constructive termination because the existing location is alleged to no longer be viable. More likely, the claim for constructive termination is not viable.
Measuring Impact
Impact attributed to a neighboring location triggers high emotions. The distance between the locations is one factor, but not the only factor, and may ultimately be an insignificant factor. The first rule is that initial impact is not actionable, because it is normal for a new location to attract attention and curiosity. Sustained impacts over months may be actionable but legal theories to support such claims are thin. Absent a direct breach of a protected area, the franchisor has discretion to locate another location proximate to the complaining location in good faith.
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