If You Purchase the Wrong Franchise Your Legal Remedies May Be Limited
by Ed Teixeira
Current franchise agreements and judicial decisions can provide obstacles to
franchisees who take legal action against their franchisor. The result is that
prospective franchisees had better make the right decision when choosing and
purchasing a franchise.
Individuals that decide to purchase a franchise should do an exhaustive
evaluation of the franchise to confirm the following:
- The franchise fits your financial, business and personal
resources and profile
- What the franchisor staff tells you can be confirmed by
current and former franchisees
- The franchise is not flawed and has a proven track record of
If your evaluation reveals any of these items are a problem then you should
be careful about purchasing a particular franchise. For a resource to assist you
in your evaluation process
The downside of making the wrong franchise choice can be costly and
devastating. One of the mistakes individuals can make when purchasing a
franchise is to have the mistaken belief that if things donít work out there is
always the opportunity to seek recourse through the courts. This is not to say
that people have this thought firmly implanted in their mind, however, most of
us feel that if we donít receive what weíve paid for than we have a right of
recovery through the legal system.
However, in the case of a franchise dispute there are certain provisions of
the franchise agreement that can limit your legal options. This reinforces the
need to select the right franchise.
Here are some examples of why successfully litigating against a franchisor
can be difficult:
- Franchise agreements have a provision that basically states;
if itís not in writing it doesnít count. This is called an
Integration clause. For example, if the franchisor staff states
if you need any assistance they will always be there to support
you, but they donít, if itís not in writing youíll have a hard
time proving your case.
- There are sections that set forth the duties and obligations
of the franchisee and franchisor. The franchisor section lists
the services and support the franchisor provides. If itís not
listed here, then donít expect to hold the franchisor
accountable for something that is not in the agreement.
- The Franchisee Acknowledgement is common in todayís
franchise agreements. This document signed by the franchisee
includes an acknowledgment that there were no representations or
disclosures that were not included in the Franchise Disclosure
Document and Franchise Agreement. An example would be sales or
profit projections. A franchisee that has signed this document
would have a hard time convincing a judge or jury that someone
made unauthorized financial disclosures.
- Venue Provisions requires that franchise disputes be
litigated or arbitrated in the franchisors home state. This can
increases costs for a franchisee.
- Most franchise agreements require the franchisee to pay all
of the franchisors legal expenses in the event of litigation
between the parties and the franchisor prevails. However, if the
franchisee prevails these agreements do not allow the recovery
of legal fees by the franchisee.
These are some examples of why it can be difficult for a franchisee to
prevail in a lawsuit against their franchisor, unless the franchisor commits
provable fraud or other egregious acts.
The bottom line is, choose your franchise wisely.
© 2011 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at