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Entering into the franchise agreement can be an exciting time. You are beginning a business journey under the franchisor’s established brand. As you establish yourself in your new role, you will invest much of your time and money into your franchise location. You do not want unforeseen setbacks or to discover that your business will not achieve the success the franchisor initially promised. As a franchisee, it is crucial to understand your rights and the steps you can take if you suspect your franchisor misled you. This article will explain these steps, providing examples of common ways franchisors may mislead prospective franchisees.
1. Identify Exactly How the Franchisor Might Have Misled You
A franchisor might mislead a prospective franchisee with misleading information or false representations about a franchise opportunity. The following table outlines common ways franchisors might mislead their franchisees.
| Example | Explanation |
| Providing inflated profit projections | A franchisor might provide overly optimistic revenue and profit forecasts that are unsupported by actual performance data or realistic market conditions. They might use these inflated figures to attract more people to the business opportunity. You might enter the franchise agreement expecting high profits but later find that your actual earnings fall considerably short of these projections. |
| Understating costs | A franchisor might minimise or fail to disclose the full scope of costs involved in operating a franchise within their network. The affected costs might include ongoing fees, supply costs and notification of other necessary expenditures. |
| Misrepresentation of Territory Rights | They might promise you exclusive territory rights but allow another franchisee to open a location within the same area. This can lead to market saturation and reduce your location’s profitability. |
| Failing to Disclose Key Information | If the franchisor fails to disclose important information about the franchise system and you make the investment without being fully aware of a critical issue, this could amount to misrepresentation. |
It is essential to note that when buying a franchise, conducting your own due diligence is critical. Do not solely rely on the information that the franchisor provides you. While the above examples could amount to misrepresentation or breach of contract, you are responsible for minimising the risk of being misled. You must conduct thorough research and ask plenty of questions before investing in a franchise opportunity to avoid surprises further down the line.
2. Review the Franchise Agreement
Next, thoroughly review your franchise agreement and other documents the franchisor provided, such as the operations manual.
Depending on how you think the franchisor misled you, you might pay close attention to terms and information relating to aspects such as:
- profit projections;
- initial costs;
- ongoing fees; and
- operational requirements.
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3. Document the Misleading Information
Once you have identified how the franchisor might have misled you and reviewed the relevant legal documents, document all instances where you believe the franchisor misled you. These might include:
- emails;
- franchise opportunity marketing materials you saw as a prospective franchisee;
- conversations;
- financial projections; and
- any other relevant communications.
4. Seek Legal Advice
Consult with a solicitor who specialises in franchise law. An independent legal expert can help you understand your rights, evaluate the strength of your case and advise you on the best course of action. They can also assist you in interpreting the franchise agreement and identify any potential breaches of contract or misrepresentation.
5. Communicate With the Franchisor
Before taking formal legal action, consider addressing your concerns directly with the franchisor. Sometimes, you can resolve such issues through open communication and negotiation. Express your concerns in writing and request a formal meeting to discuss the discrepancies and seek a resolution.
Discover the key legal and commercial issues to consider when buying a franchise.
You may need to pursue formal legal action if alternative resolution methods fail. However, this is a last resort due to the time, cost, and stresses involved.
Key Takeaways
Discovering that your franchisor has misled you can be challenging. It can be disheartening and also damaging to your investment and business interests. Remember, you have rights as a franchisee, and legal avenues are available to address the situation. Taking particular steps can protect your interests and seek redress. These steps include the following:
- identifying exactly how you think the franchisor misled you;
- reviewing the franchise agreement and other relevant documents;
- documenting how the franchisor has misled you;
- seeking legal advice;
- communicating with the franchisor to seek a resolution; and
- potentially seeking formal legal action if other routes are unsuccessful.
If you think your franchisor misled you, LegalVision’s 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 0808 196 8584 or visit our membership page.
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