BUYING A FRANCHISE – BEWARE OF EMPTY PROMISES
Nov. 26, 2013
If you are considering buying a franchise, you need to beware of empty promises from the franchisor. Over the last few years, franchise agreements have become extremely one-sided. Recently, many franchisors are making no enforceable promises to provide franchisees with any support or assistance after their business opens.
The trend is that, for paying thousands of dollars in franchise fees and royalties and signing on to other obligations, the franchisee gets nothing but the right to use an often valueless trademark and to follow whatever rules are handed down. In several instances recently, franchisors have provided that, if the franchisee needs assistance, they have to pay an hourly or daily fee plus any expenses incurred by the franchisor (in the franchisor’s sole discretion) for that assistance-on top of the royalties, marketing fees and miscellaneous fees. Under this modern scheme, franchisees are truly on their own to figure out how to operate the business after the end of their few days of “training.”
This is not to say that some (perhaps even most) franchisors will not voluntarily provide greater levels of support and assistance than they have legally obligated themselves to provide-but it does mean that you, as a franchisee could never force them to provide such services or obtain a remedy for their failure to provide them. As with any contract, if there is nothing in it that you can enforce in your favor, it has no lasting value to you. The people performing on the other side and their motives change over time. What matters is what are your legal rights if and when you need ongoing support or assistance.
A frustrating aspect of these one-sided, obligation-free franchise agreements is that prospective investors receive no meaningful disclosure of just how little of the 30 or 40 page contract is enforceable in their favor. They have looked at an FDD and talked with franchise sales people, all of which talk exhaustively about what the franchisor will do for them-never addressing the fact that the contract says they are obligated to do absolutely nothing. Whether the FDD should change is beyond the scope of this brief blog.
What you should understand is that you probably are not trained in reading FDDs and franchise agreements and clearly identifying exactly what benefits you are getting in exchange for all the money and risk. If you are buying a franchise, beware of empty promises. Consult with an experienced franchisee attorney before you buy and make sure you are not paying a lot of money for just empty promises that disguise an absolute lack of enforceable obligations in your favor. Only if franchisees stop signing such unfair franchise agreements will franchisors change their behavior.