Franchisors are required to make accurate representations about the terms of their franchise offerings. As a result, if a franchisor makes fraudulent misrepresentations during the sales process, this can serve as grounds to hold the franchisor accountable—or, if desired, to seek to rescind a franchisee’s franchise agreement. That said, franchisees’ rights vary by state; as a result, franchisees with questions about their rights should consult an experienced franchise lawyer.
When you are considering a franchise opportunity, it is critical to make an informed buying decision based on an accurate understanding of what you can expect should you decide to move forward. So, what if a franchisor says one thing and its franchise agreement says another?
Regardless of what a franchisor says during the sales process, its franchise agreement binds both parties upon execution. This means that if a franchisor says one thing and its franchise agreement says another, its franchise agreement will generally control. But franchisors can be held accountable for fraudulent misrepresentations in certain circumstances—and if you have questions about holding your franchisor accountable, it’s worth talking to an experienced franchise lawyer about your legal rights.
What If I am Considering a Franchise Opportunity and What the Franchisor is Saying Doesn’t Align with Its Franchise Agreement?
If you are considering a franchise opportunity and what the franchisor is saying doesn’t align with its franchise agreement, this is a potential red flag that warrants careful consideration. As a general rule, franchisor executives and sales representatives should accurately understand the terms they offer prospective franchisees.
With that said, mistakes happen. If an executive misspoke or misunderstood your question, or if a sales representative wasn’t up to date on the most recent changes to a franchisor’s franchise agreement, their misstatement may amount to an excusable error. On the other hand, if a franchisor’s executives or sales representatives don’t really understand the terms they are offering—or worse, if they feel that it is necessary to misrepresent the terms they are offering in order to sell franchises—this is a much more serious issue.
As you think about moving forward, you will want to carefully consider the implications of your interaction. Can you trust that the franchisor’s team is qualified? Can you trust that the franchisor will deal with you in good faith? Is there a reason why the franchisor’s executives or sales representatives didn’t want you to know the truth? These are important questions to answer before you commit to purchasing a franchise.
What If I Found Out My Franchisor Misled Me During the Sales Process After I Signed My Franchise Agreement?
What if you didn’t find out that you were being misled until after you signed your franchise agreement? In this scenario, your legal options depend on a few key factors:
- Was the misrepresentation material to your decision to buy a franchise? If it was, you may have grounds to take legal action.
- Does your state have a franchise disclosure law? Some (but not all) states have franchise disclosure laws that provide remedies for pre-purchase misrepresentations.
- Do you have other grounds to take legal action? Even if your state doesn’t have a franchise disclosure law, you may be able to pursue a claim for fraud or on other grounds.
It’s also important to review your franchise agreement’s dispute resolution provisions. Even in this scenario, you will still generally need to comply with your franchise agreement’s mandatory alternative dispute resolution (ADR) clause. An experienced franchise lawyer can help you make an informed decision about what to do; if it is clear that your franchisor misled you, negotiating a resolution with your franchisor may be an option as well.
FAQs: Dealing with Franchisor Misrepresentations
Should I walk away if a franchisor is giving me false information about its franchise opportunity?
If you have reason to believe a franchisor is intentionally trying to mislead you about its franchise opportunity, that could be a sign it is time to walk away. You need to be able to trust your franchisor; if a particular franchisor isn’t trustworthy, plenty of alternatives are available.
Can I talk to current franchisees to gain their insights about a franchise opportunity?
Yes, prospective franchisees can—and should—talk to plenty of current franchisees during the due diligence process. This is one of the most effective ways to learn what you can really expect if you decide to move forward with buying a franchise.
What if my franchisor and I disagree about what my franchise agreement requires?
If you and your franchisor disagree about what your franchise agreement requires, consult an experienced franchise lawyer who can help you make informed decisions about your next steps. If your franchisor is wrong, you should not give in, but you will need to be prepared to substantiate your reasoning—and it may make sense for your lawyer to talk to your franchisor’s in-house counsel and try to reach an amicable resolution.
How Goldstein Law Firm Can Help
At Goldstein Law Firm, our practice is devoted to representing prospective, current, and former franchisees. If you have questions about buying a franchise or protecting your rights as a franchisee, we can walk you through everything you need to know. We can also review the terms of your FDD and franchise agreement if you’re considering buying a franchise; and, if you are facing a dispute with your franchisor, we can work to secure a favorable resolution on your behalf.
Schedule a Free Initial Consultation with Franchise Lawyer Jeffrey M. Goldstein
Do you have questions about buying a franchise or protecting your rights as a franchisee? If so, please get in touch. Call 202-293-3947 or contact us online to schedule a free initial consultation with franchise lawyer Jeffrey M. Goldstein.
