Entering into a franchise agreement usually involves a lot more than receiving the agreement and signing on the dotted line. Typically, the franchisor will provide information to prospective franchisees and meet with them to discuss the franchise system and benefits before any documentation is drawn up.

Sometimes, promises or representations made during this pre-contractual phase don’t make it into the written paperwork, and yet without that information or assurances, you would not have entered into the agreement in the first place.

Especially when something goes wrong, or you seek to rely on those assurances during the franchise relationship, it is important to ascertain whether those promises are binding, and whether or not the franchisor can be held accountable for same. So how do you determine what counts as franchisor misrepresentation?

Critical Factors To Consider

In examining this issue, here are some factors to think about:

  1. Nature of representation – to determine if it’s binding, it’s necessary first to consider the nature of the representation. Was it unambiguous? Was it in regards to a present or future matter? Did a person make it with authority to bind the franchisor? Was there a reasonable basis to make the representation? Each of these factors will require careful consideration in determining the next step.
  2. Application of the Franchising Code – the Franchising Code of Conduct now (as of 1 January 2015) precludes franchisors from excluding pre-contractual warranties. Accordingly, the timing of the representation will be of importance.
  3. Evidence of representation – it’s one thing to say you were given certain promises, and an entirely different thing to prove it. If you intend to pursue or agitate the issue with your franchisor, it is certainly worthwhile to consider what evidence you will have available to you or which you could obtain to support your position.
  4. Disclaimers and entire agreement clauses – it is commonplace for franchise agreements to contain these boilerplate provisions that, in essence, seek to exclude things external to the written contract from forming a binding contractual obligation. The validity of these clauses will depend on their precise wording and the application of the Code.

Conclusion

If you think you have a basis to force the franchisor to make good on its pre-contractual assurances, the first thing you should do is talk to a franchise lawyer. They will be able to assist you in examining these points (and anything else of relevance) to develop an action plan to progress the issue.

Get in touch with LegalVision on 1300 544 755 and our franchising legal team will happily assist with a fixed-fee quote.

Emma Jervis

Next Steps

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