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If the financial forecasts provided to a franchisee by a franchisor prove incorrect, can the franchi
During pre-sale discussions, many things are said by a franchisor to encourage a franchisee to buy a franchise and frequently franchisors provide financial forecasts during the recruitment process relating to the turnover and profitability of their businesses.If these figures turn out to be incorrect or misleading, the franchisee may have a claim against the franchisor for misrepresentation. If an untrue statement of fact is made by a franchisor to a franchisee that induces the franchisee to enter into a franchise agreement and the franchisee suffers loss as a result, the franchisee may have a claim against the franchisor for misrepresentation. A representation will be fraudulent where it has been made knowingly, without belief in its truth or recklessly as to its truth. Fraudulent misrepresentation is the hardest to prove, as the franchisee has to prove an absence of honest belief. A negligent representation is made carelessly or without reasonable grounds for believing its truth. An innocent misrepresentation is where the franchisor can show it had reasonable grounds to believe the statement was true.The remedies available to the franchisee will depend on the type of misrepresentation. If the misrepresentation was made fraudulently or negligently, the franchisee will be entitled to:
- Have the agreement rescinded (ie, set aside).
- The parties put back into the position they were in before the agreement.
- Damages to put the franchisee into the position they would have been in had they not signed it.
If the misrepresentation was innocent, the franchisee will be entitled to rescission or damages, but not both. The claim may therefore be substantial.If a franchisee believes they have been provided with incorrect financial information by a franchisor, they should seek advice from a British Franchise Association affiliate solicitor.
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