The importance of reading everything in the Franchise Agreement
Last week, I discussed the importance of reading and understanding all of the representations and warranties that the franchisor makes in the Franchise Disclosure Document (in case you missed it, check it out here: Where do I begin?. However, just as important as understanding what the franchisor is promising in the FDD, is understanding what you as the franchisee are acknowledging and representing when signing the franchise agreement. Many, if not all, franchise agreements include statements like the following:
- Franchisee acknowledges that he or she has not received or relied on, any warranty or guarantee, express or implied, as to the revenues, profits or success of the business venture contemplated by this Agreement.
- Franchisee acknowledges that he or she has not received or relied on any representations about the franchise by Franchisor, or its officers, directors, employees or agents, that are contrary to the statements made in Franchisor’s Franchise Disclosure Document or to the terms of this Agreement, and further represents to Franchisor as an inducement to its entry into this Agreement, that Franchisee has made no misrepresentations in obtaining the franchise.
- Franchisee acknowledges that he or she has read this Agreement and Franchisor’s Federal Disclosure Document and that he or she understands and accepts the terms, conditions and covenants contained in this Agreement as being reasonably necessary to maintain Franchisor’s high standards of quality and uniformity of those standards in order to protect and preserve the goodwill of the Licensed Marks.
Now, you may be thinking to yourself that those statements are just boilerplate language written in legalese that cannot really have much of an effect but that is not the case, even in states that have franchise laws. See “Georgia Supreme Court to Franchisees: Read Your Contracts!” Not reading the contract before you sign it is not an excuse to get out of a bad agreement and having these acknowledgements and representations in the agreement can limit your ability to claim that you were fraudulently induced to purchase the franchise. This boilerplate language provides another important reason to make sure to read through the entire FDD and franchise agreement and understand exactly what is in the documents before signing on the dotted line.