The Importance of the Franchise Disclosure Agreement from a Long Island Franchise Attorney

The bedrock of any franchise is the FDD or franchise disclosure agreement. This agreement is a 150 to 200 page document in which every detail and stipulation concerning owning a franchise is set forth. In addition to standard rules laid down by the state governing body, there are federal regulations set in place by the Federal Trade Commission or FTC. Then comes the key legal document from your chosen franchiser that you sign. These are complex documents with a knack for burying information that can come back to haunt the franchise owner. If not properly vetted through an experienced professional, you are risking serious financial losses and hardships.

The trust you have in your parent company and its sales reps should only go so far. If you ask a Long Island franchise lawyer, they will tell you that the number of people who fail to read their contracts is astounding. It would seem logical that someone who is prepared to invest hundreds of thousands of dollars in something as significant as a franchise would read their contract. But, surprisingly, this just isn’t the case.

The technical elements of this document are of significant importance, and admitting that you do not have the legal expertise to understand it all is an important first step to take. Franchise attorneys have most likely written multiple documents similar to the ones you are presenting to them. They can and will help educate you on the key provisions you are about to legally bind yourself to. Even if there are no hidden clauses or surprise fees, having a clear understanding of how your parent organization legally requires you to run your business is of vital importance to your success.

In 2009, Mr. Hailemariam’s franchise ran into financial difficulties, and he was forced to close down. In light of this, he filed a case against Big O Tires in the state of California, alleging that the franchiser fraudulently misled him into purchasing his franchise. He stated that Big O Tires falsely told him that he did not need experience to operate a tire store; provided exaggerated earnings claims; concealed failing franchises from him; and told him they would sell him tires at a competitive rate, when, in reality, tires could be purchased at lower prices.

In total there were six grievances, and the court sided with Big O Tires on all of them after their lawyers were able to highlight explanations to each of Mr. Hailemariam’s grievances within his franchise contract. The court took particular notice of the fact that Mr. Hailemariam had taken considerable time to negotiate the terms of his franchise with Big O Tires in which he utilized legal counsel. In all that time he had still not read the franchise contract itself. Considerable weight was given to an integration clause in the franchise agreement which stated that “[he] was not relying on any promises of Big O which [were] not contained in the Big O franchise agreement . . . [or the] accompanying Franchise Offering Circular.”

Every franchise owner who has had a disagreement with their franchiser will tell you that understanding the legal documents you sign your name to is of absolute importance. Warren S. Dank, in addition to being a New York construction attorney and a New York real estate attorney, has years of experience helping people avoid the hazards of franchise ownership in Long Island. His expertise and services allow people to make confident investments in their business by understanding exactly what their relationship is with their franchiser. It is peace of mind and good business that allows his clients to avoid dangerous hazards. For investments as significant as a franchise, his services should be considered vital.

 

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