Gaps between the pitch and the paperwork
Federal rules require franchisors to give prospective buyers a franchise disclosure document before the sale, and a franchisor that makes financial performance claims is expected to include them in that document with a reasonable basis. Problems often arise when a salesperson or broker gives projections or earnings examples that are not in the document, or understates startup costs. New York is a franchise registration state, and its franchise law allows buyers to bring claims for certain misrepresentations and omissions, in some cases against individuals involved in the sale as well as the company. Franchisors often rely on disclaimers and integration clauses in the agreement, and how much weight those receive depends on the facts and the governing law.
Reconstructing what you were told
Collect the disclosure document you received, with the date you received it, and the signed agreement. Save emails, text messages, presentation slides, spreadsheets, and any brochures from the sales process. If a broker or consultant introduced you to the brand, keep their materials and agreements as well. Notes of calls with existing franchisees are useful, especially if they were given to you as references. Financial statements from your own unit show how actual results compare to what was represented. Do not stop operating or paying royalties on your own before talking with a lawyer, because that can create claims against you.
Assessing claims and timing
In an early review we compare what was said during the sale against the disclosure document and the agreement. We look at whether the agreement requires arbitration or a particular forum, which law governs, and whether the claim fits New York's franchise law or another state's. Claims of this kind can carry limitation periods that run sooner than people expect, so we check dates early. We also discuss realistic outcomes, which may include rescission, damages, or a negotiated exit from the franchise, and the cost of each path.
