The UFOC IS NOT the Agreement!
All too often franchisees execute the Franchise Agreement, based on what they've read in the UFOC vs. what is Actually contained within the Agreement. It is the Agreement and not the UFOC that will define the framework for the relationship. I hope that the following information will prove helpful to anyone evaluating a franchise opportunity. It is extracted from The Law & Your Franchise, a resource provided to each FranSynergy client and or Subscriber to the Franchise Service Package.
When studying the UFOC, remember that it is prepared by the franchisor and that the information it contains is not verified by any state or by the Federal Trade Commission. In fact, it is not verified by anyone except the franchisor. This does not mean that the information misrepresents facts, that it is deceptive, or that it contains errors. This means that even when the UFOC has been filed with one or more states due to state filing requirements, no government agency nor any other entity than the franchisor is officially verifying or even acknowledging any information in the UFOC. The real purpose of the UFOC cover sheet is to inform you of this and to encourage you to do your own verification of the information contained in the UFOC. The real problem, though, is not whether the franchisor has been completely honest with the information in the UFOC. The real problem is whether the prospective franchisee actually takes the time and effort required to analyze the information in the UFOC in order to understand what it all means.
A prospective franchisee who has studied the UFOC may come to believe that they clearly and fully understand all they need to know to make the decision to become a franchisee. This understanding, together with education and business experience (along with entrepreneurial self-confidence) should indeed be enough to make a conditional decision. From a legal perspective it is a mistake to just sign the franchise agreement presented by the franchisor on the basis of analysis of the UFOC. The two documents have different legal purposes and each should be analyzed within the perspective of its particular purpose. The franchise agreement must be analyzed as carefully, critically, and as objectively as the UFOC:
- There may not be much room for negotiation with the franchisor, but questions must be asked and any desired changes should be brought up to the franchisor.
- If there are differences between the content of an item in the UFOC and in the corresponding or related section of the franchise agreement, get an explanation.
- If oral discussions and/or written correspondence has addressed an issue that either party believes has resulted in an agreement about anything, but this same issue is either not included in the franchise agreement or is not described the same as in the oral discussions or written correspondence, get this problem resolved. The language in the contract will be enforced instead of any “agreement” made orally or in any documents that are not a part of the franchise agreement. Remember the “four corners” rule: the terms and conditions of the franchise agreement will be legally enforced only as they are each described in the written document, and, if something is not included in the written document, it is not part of the franchise agreement.
- If an issue important to the franchisee is not included or if it is not addressed satisfactorily in the agreement, try to get the franchisor to agree with you on how this issue will be described in the agreement.
- A franchise agreement, like any contract, is interpreted and enforced as a whole document, not as a collection of separate parts. Everything contained in the agreement is important, nothing will be overlooked, and, everything will be analyzed together as being complimentary and supportive parts of a whole that cannot exist separately (and which will not be expected or allowed to live separately).
- Deciding to accept and sign a franchise agreement must be a business decision. No one is ever so experienced and wise that they do not have to be reminded of this fact. (A comment often heard by lawyers from a new client is, “I can’t believe I got myself into this mess, I thought I was smarter than this.”)
The Legal Meaning of Signing the Franchise Agreement
When a franchise agreement (or any other contract or legal document) is signed, the signor is stating that:
- I have read the entire franchise agreement.
- I understand everything in the franchise agreement.
- I will do everything required of me in this franchise agreement.
- I have acted in good faith throughout the negotiation and formation of this agreement and I am entering this relationship in good faith.
- This is my voluntary act that I understand is legally enforceable.
If a dispute based on the franchise agreement finds its way before an arbitrator or a judge, it will be no defense to claim that something in the agreement was not understood or appreciated.
Believe & Succeed,DaleFranSynergy, Inc.Synergizing Franchising!