The Franchise Rule's 2008 Makeover
Independent franchisee associations are now listed in the disclosure document. This is good because Independent Associations are well, independent. They do not kow-tow to a franchisor to tell you great things about the store to curry favor with the franchisor or get you to buy one. Unfortunately, according to the American Association of Franchisee and Dealers, less than 4% of all franchisors have an independent association of owners. So if you see one listed on the disclosure document, the buyer is indeed very fortunate to be able to use them as a resource.
Long a bone of contention with franchise owners and ex-owners on Blue MauMau, Item 20 of the disclosure document has undergone a major revamp. There is a specific format of tables in which termination and transfers are more clearly exposed.
There are other major benefits of the new federal and state disclosure requirements.
Michael Garner, franchisee attorney with Dady & Garner, P.A. , thinks the updated rule brings strong benefits to potential franchise buyers. "One of the big benefits is that a franchisor's integration clause and disclaimers in a contract cannot make a violation of the rule ineffective," declares Garner. "Under the old rule, if the franchisee signed a franchise agreement saying that all representations are in this agreement and disclaimed any prior representation, the franchisee has signed away the right to sue for a disclosure violation. The new rule renders that kind of disclaimer ineffective so that the franchise owner has the right to sue under a state franchise law."
Today is the first day that the Federal Trade Commission's new franchise rule permanently kicks in. The FTC began the current makeover over a decade ago in which it took considerable time to receive input from franchise attorneys and the industry. Any new update or makeover of today's ruling would most likely be years away.
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