Beware of Boilerplate Disclaimers
Buying a franchise is a massive opportunity for those dreaming of owning a business. If you’re thinking of buying a franchise operation, you’re not alone. The International Franchise Association (IFA) expects U.S. franchises to rise from 774,965 units in 2022 to 805,436 in 2023.
If you’re among those seeking a franchise, you must do your due diligence by researching the franchisor, speaking with other franchisees, and reading the fine print when coming across any important documents.
The Federal Trade Commission (FTC) requires that a potential franchisee is provided with a Franchise Disclosure Document (FDD). With its 23 mandated sections, the FDD is the first document that needs crucial examination. More important, however, is the ultimate franchise agreement that you will need to sign to become a franchisee.
Both documents contain what are known as “boilerplate disclaimers.” These disclaimers come in many forms. Some hide in the fine print near the back of a lengthy FDD. Many are duplicated or originated in the franchise agreement or contract. They are hard to find and understand to prevent you from noticing until it is too late. The salesperson or closing agent hopes you will never read and understand these disclaimers.
Those disclaimers, sometimes referred to as “non-reliance clauses” and 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 and that you have understood every word of both.
They also—and here’s the catch—have you agree that you have not received any information “inconsistent with” the FDD from anyone. This is to prevent you from taking any legal action in the future if a salesperson promises one thing, but your agreement states something else.
Before you sign a franchise document, contact the franchise attorneys at Bundy & Fichter PLLC. Your FDD and franchise agreement need to be reviewed, including the boilerplate disclaimers, to protect your rights as a franchisee. Bundy & Fichter PLLC serves potential franchisees in and around Seattle, Washington, including Oregon, Texas, Florida, and everywhere in the nation.
Common Boilerplate Disclaimers
The boilerplate disclaimers used by franchisors are a shield to protect themselves legally and otherwise. They are boilerplate because the franchisor routinely throws them into the FDD and franchise agreement, hoping the prospective franchisee pays little attention. Some may even be toward the end of a 300-page FDD. Here are some common boilerplate terms utilized:
INDEMNIFICATION: Basically, this refers to who’s liable for what, and franchisors have been known to shift liability onto franchisees as much as possible.
INTEGRATION: This clause protects the franchisor from any claims made by company representations or salespersons before you sign the final agreement. The franchise agreement is the sole source of your legal rights, in other words.
DISPUTE RESOLUTION: This clause could contain a mandatory arbitration agreement or mediation clause in lieu of a franchisee lawsuit or prior to a lawsuit.
VENUE: This clause can mandate that any mediation, arbitration, or litigation takes place in the city where the franchise headquarters are located, which could be many hundreds or thousands of miles away from where you’re located.
WAIVERS: There are two common waivers. One is that the franchisee can waive the right to a trial by jury and instead rely on a judge to rule on the proceedings. A second is a waiver of punitive damages in a lawsuit.
Why You Are Asked to Sign Confusing Agreements
The obvious reason is to protect the franchisor and to shift as much responsibility – including liability – as possible onto the franchisee. If you accuse the franchisor of defrauding, lying, or misleading you, they can refer to the document you signed, in which you agreed to various terms and conditions listed above. In almost all states, this takes away your common law fraud claims. In some states, it also takes away your statutory fraud claims.
The Role of a Franchise Attorney
The pages and fine print containing boilerplate terms and disclaimers are not easy to sort through and understand. In your rush to get your new business up and running, you may overlook language that can come back to haunt you and simply sign away some of your rights.
That’s why you need to have any franchise document you intend to sign reviewed by an experienced franchise attorney. You may be able to get the language modified, but on the other hand, the franchisor may decide you’re not the right candidate for the franchise and refuse to sell. There’s a fine line to walk, but you need to protect your rights as much as possible. In some cases, your best option may be to say “no.”
Practical and Professional Legal Counsel
The attorneys at Bundy & Fichter PLLC have a combination of 45 years of experience helping prospective franchisees navigate the process. They will review any documents or agreements, provide knowledgeable insight, and strive to lead you in the right direction.
Based in Seattle, Bundy & Fichter PLLC serves clients nationwide. Reach out with questions and concerns about any franchise opportunity you’re exploring.