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Beware of Boilerplate Disclaimers

| Apr 15, 2020 | Buying A Franchise |

If you are considering buying a franchise, you should beware of boilerplate disclaimers. They come in many forms.  Some are buried in the fine print near the back of a thirty-page franchise agreement.  Many are duplicated in a separate document back near the receipt in the FDD.  They are back there so you will not notice them until it is too late.  The salesperson certainly hopes you will never read and understand them.

Those disclaimers, sometimes referred to as “non-reliance clauses” or sometimes by the deceptive title “Franchisee’s Representations” are a series of paragraphs that have you agreeing, in essence, that you have read the entire franchise agreement and the entire Franchise Disclosure Document (FDD) and that you have understood every word of both.  They have you agree that you have not received any information that is “inconsistent with” the FDD from anyone.  You should not agree to such statements because they are untrue virtually one hundred percent of the time. 

The attorneys of the Bundy Law Firm graduated from law school (with honors), are heavily involved in franchise law issues, have a combined 45 years of franchise experience, and even write franchise documents.  .  Neither of us could truthfully say that we understand every provision of any FDD.  FDDs are 100 to 400 (or more) pages of legalese, jargon, cross-references and, often inconsistencies that deal with a complex set of commercial relationships.  Yet boilerplate disclaimers expect you, as a prospective franchisee,  who has no background, experience or knowledge, to be able to understand every word of the FDD and agree that the franchisor, its representative or you franchise broker said nothing that was inconsistent with the 400 page FDD..  It’s an impossible task.

So, why do franchisors routinely ask you to sign what they know are false statements?  They do it because it sets them up for a defense when someday you accuse them of defrauding you, lying to you, or misleading you.  One of the first questions in your deposition will be “and you signed right here saying you fully read and understood . . . didn’t you?”  In almost all states, that takes away your common law fraud claims.  In some states, it also takes away your statutory fraud claims.  Most federal judges and many arbitrators will never listen to what really happened after they hear your answer to that question.  In other words, franchisors have you sign false statements in an effort to get you to waive your claims for fraud before you could possibly even comprehend that you had been deceived.

Regrettably, it leaves you with few options.  If you answer truthfully, most franchisors will not let you invest in the franchise.  However, if every prospective franchisee suddenly declined to sign those things (or crossed them out in the franchise agreement), franchisors would change their ways.  It is the willingness of franchisees to sign franchise agreements that they don’t understand in order to get the “privilege” of renting a business that enables franchisors to make such demands.  The market you create by being willing to sign a  confusing waiver for some perceived benefit is the heart of the problem.  Refusing to sign an unreasonable and untrue contract is the solution.

If you are considering buying a franchise, you should beware of boilerplate disclaimers–and, in many cases you should just say “no.” At the very least, discuss this issue with an experienced franchisee lawyer before signing.