How To Protect Your Franchise From Misrepresentation?

Misrepresentation is unacceptable in today’s highly competitive and transparent corporate world. Misrepresentation can be described as providing information that is incomplete, inaccurate or misleading. It can either be intentional or unintentional. In the franchise sector, franchisees have often complained of misleading and deceptive conduct by the franchisor. Franchise companies have a sales pitch when they market their franchise, which might tip over the line of being a misrepresentation. During pre-sale meeting, the franchisor may state many things to encourage the franchisee to buy a franchise. If there is any untrue, incomplete or omission of information that induces the franchisee to buy the franchise and on account of that he suffers a loss, then as a result the franchisee can sue the franchisor for misrepresentation.

Depending on the situation, the franchisee can claim damages or revoke the agreement. Hence, franchise protection from misrepresentation is vital. There are several ways for franchise protection from misrepresentation.

Well-drafted franchise agreement

The franchise agreement can be used as evidence for misrepresentation claims. If there is any untrue clause, it can be used by the franchisee to sue you. Hence, it is best to have the franchise agreement drafted by a professional lawyer and reviewed regularly to keep it updated. You may consider including the following terms to reduce chances of misrepresentation.

  • A clause stating that the entire agreement is the agreement between the parties and supersedes any prior agreement, negotiations or pre-contractual statements.
  • An exclusion of liability for misrepresentation
  • A non-reliance clause, which states that the franchisee has not relied on pre-contractual statements.

Any clause limiting the liability for misrepresentation must be reasonable otherwise it can be rendered unenforceable.

Pre-contractual disclosure

Although it may or may not be necessary in your province, there are considerable advantages related to pre-contractual disclosure. You can refer to it in any event of dispute about pre-contractual information provided to the franchisee. It must include all the information provided to the franchisee which may include business, operations, franchise system, franchisor control. The disclosure must be such that allows the franchisee to make an informed decision. A carefully drafted pre-disclosure document can save you from misrepresentation claims.

References from existing

A reference from other franchisees allows the prospect to draw a true picture of the franchise system, and shows that the franchisor has nothing to hide. The franchisor should not pick only the successful franchisees or those who he has a good relation with. He must allow the prospect to access all other franchisees.

Records of Sale discussions

Consider providing a written script or a question and answer sheet to the sales personnel. Such records can be a useful evidence to prove what your sales personnel would have said to the prospect. A CRM system can also be helpful in tracking progress with prospects and keeping a record of what is discussed in sales meeting.

Implementing these few steps can provide your franchise protection against misrepresentation. Misrepresentation claims can be expensive and time consuming. Additionally, it can be damaging to the franchise reputation. Legal counsel, when drafting a franchise agreement, will be helpful in franchise protection.

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