This article are provided for information purposes only, and are not intended as legal advice.


Franchises and income trusts

November 23rd, 2008

If your franchisor misrepresented the ability of the location, I have seen people sue the master franchisor and win.  Unfortunately, many franchisees have their life savings in the business and have no resources to sue the master franchisor.  If the franchisor is partly owned by an income trust, as many are in Canada, it is difficult to negotiate with the franchisor because part of the business is owned by the income trust and part privately.  Often, the franchisor does not want any negotiations to impact the public entity.

If you have been lied to and done everything that the franchisor recommended and you still are losing money, keep in mind, you may have recourse.  Check with your legal council to determine if they believe that you have a case. 

 

In one scenario, the franchisee did everything that the franchisor recommended and the projected sales were 50% of the projected first year sales.  This was in year 5.  The problem with the franchise was location, location, location. In this case, the master franchisor did not admit they selected wrong location but they paid the rent for several years until the franchisee sued because of his continuing losses.  Many franchisors provide projections, the uniqueness of this situation was that they provided a projection for this specific location and there were no disclaimers on the projection.  As a result, the franchisee believed that he had grounds for a lawsuit and the case was settled out of court.

 

If you purchased a business from an independent business person and the business is not a franchise, you may not have the ability to go after the prior owner.  You will have to have your lawyer look at your reps and warranties to see if you have a legal position.


Filed under: Franchises — Gary Landa @ 10:26 am


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