Wake-up call – What to do if a franchisor is failing to provide support

09 March 2012
Wake-up call – What to do if a franchisor is failing to provide support

Franchising is booming and can be a great way to buy into an established brand, but beware - disputes are on the rise. Legal expert Victoria Hobbs explains the actions available if a franchisor proves disappointing

The Problem
I entered into a franchise agreement two years ago and am unhappy with the lack of support I have received in contrast to what I was promised. Is there anything I can do about this?

The Law
During pre-sale discussions, many things are said by the franchisor to encourage an interested party to buy a franchise. If an untrue statement of fact is made by a franchisor that induces someone to enter into a franchise agreement and suffer loss as a result, the franchisee may have a claim for misrepresentation.

The remedies available to you will depend on the type of misrepresentation but if you can prove that the misrepresentation was made fraudulently or negligently you will be entitled to have the agreement set aside, the parties put back into the position they were in before the agreement and damages to put you into the position you would have been in had you not signed it (including any losses arising from the agreement and the expenses of entering into it).

Alternatively, if the franchise agreement contains terms about the levels of support which the franchisor has failed to provide, you may have a claim for breach of contract which would entitle you to claim damages to put you in the position you would have been in if the franchisor had complied with its obligations. In addition, if the franchisor's breaches of the franchise agreement are so serious and fundamental so as to effectively take away the main benefits to you under the agreement, you may be entitled to terminate the agreement and claim further damages.

Expert Advice
Hurdles include:

â- The agreement usually contains statements that you have not relied on any representations when deciding whether to sign it and that the agreement contains the entire agreement between the parties. While such clauses do not necessarily prevent you from making a claim for misrepresentation, they do present a further hurdle.
â- Usually the franchisor is a much larger organisation with greater resources than their franchisees.
Despite these points you are in a fairly unique position in that there is probably a large number of franchisees in the same position and you are, therefore, a potentially powerful group.

Check List
â- Make discreet enquiries with trusted fellow franchisees to find out whether they are also disgruntled with the levels of support they are receiving.
â- If the problem appears to be inherent in the network, the franchisees could act as a group, either to take legal action or make a joint complaint to the franchisor. Advantages of a group are that there is "safety in numbers"; franchisees can pool resources, information and divide legal costs. It is easier to prove that the problem is endemic and, ultimately, the franchisor is dependent on its franchisees for survival and cannot afford to alienate or lose all of them.
â- Try to engage in open and constructive dialogue with the franchisor as a number of the issues may be resolvable in a more positive manner. Many disputes escalate unnecessarily due to a lack of communication between a franchisor and its franchisees and, even if the talks fail, you can show a judge that you tried to resolve the issues without resorting to legal action.
â- Keep all information and documents which might be relevant.

While franchisees often have an uphill battle from a legal perspective due to the way that franchise agreements are drafted, that does not mean that you should not challenge your franchisor. Even if legal action seems daunting, if franchisees can act as a cohesive group you have a large amount of power which should enable you to put yourselves in a strong position to negotiate better levels of support.

Victoria Hobbs is a partner at Field Fisher Waterhouse

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