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Problems With Your Franchisor--Beware Of Signing Amendments

If you are experiencing problems with your franchisor, beware of signing amendments to your contract or any other document purporting to resolve the problems. It is common for franchisors to give you a small concession to "help" you-but to extract a general release of claims and various factual "representations" in return.

We repeatedly see franchisees who were experiencing financial problems in their business. They approached the franchisor for help. After scaring the franchisee to death with veiled threats of taking their franchise away, the franchisor eventually agreed to help by making some small concession-perhaps deferring a payment, taking a promissory note for past-due payments, or making a small reduction in minimum royalties for a short time. The franchisee was eager to sign the agreement, perhaps out of desperation because they were given to understand that if they did not sign they were going to lose their business.

What these franchisees generally did not do is consult with an experienced franchisee lawyer before signing. Because of that, they did not understand some of the "boilerplate" the franchisor inserted, in which the franchisee "represented" they had consulted with independent counsel and that they had no claims against the franchisor for anything whatsoever-that the franchisor had never violated any law or done anything wrong. Almost always the agreement then contains a general release of all claims-past, present and future.

In most states such a general release is enforceable against you. If you are lucky enough to be located in a state like Washington, the general release, under those circumstances, may be unenforceable. However, those false "representations" you made about consulting with independent counsel before signing the amendment may hang you.

In many cases, the franchisee would have been better off to have rejected the offered benefit and confronted their genuine issues with the franchisor at that point. The benefits rarely rescue a franchisee from business failure-they only thing they generally accomplish is to insulate the franchisor from liability for whatever they did wrong.

The moral of the story is simple. Before you sign any document that would amend your franchise agreement or alter your legal relationship with your franchisor, it is extremely important that you consult with an experienced franchisee attorney. Hiding from problems or allowing your franchisor to trade window dressing for a release from liability will not fix what is wrong-and it may prevent you from obtaining a remedy you desperately need to resolve problems with your franchisor.

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