As much you may wish to avoid them, disputes and litigations sometimes happen in the franchising world. In this article, we examine the most common causes of franchise disputes and how to avoid them.
Disputes may arise at various stages of the franchise relationship, so you should be aware of the potential pitfalls in order to prevent them:
Before the agreement is made – avoid promises of success! Often franchise disputes relate to the pre-contractual stage when the parties exchange information. If the franchise business is not successful, the franchisee may wish to consider whether the business information and financial forecasts provided by the franchisor were accurate and not misleading. (Find out more about pre-contractual disclosure in franchise agreements.) The parties should make sure that facts and figures are representative and contain the necessary risk and accuracy warnings.
During the lifetime of the franchise agreement, disputes often relate to the non-performance of certain obligations, such as:
The termination or non-renewal of the franchise agreement can also lead to disputes in certain situations:
A carefully drafted franchise agreement goes a long way in preventing unnecessary and costly litigation. Ensure that your franchise agreement contains the following measures to prevent or resolve disputes:
If the cooperation starts to be problematic, it is advisable to carefully document any breaches and react quickly the problem from escalating further if possible. In case the matter escalates and ends up in court, such documentation will provide critical evidence.
Source: Dentons