Can You Trust Franchise Growth Estimates?
A franchise allows an investor to replicate the business model of an already successful enterprise. When things go well, a franchise can be an excellent business opportunity. However, without proper planning, a franchise investment can also turn into a nightmare. Unfortunately, some franchisors attempt to attract investors by using unrealistic future growth projections and overly optimistic estimates of future profits. How do you know when to trust these estimates? While Florida law offers franchisee’s extensive protection, there are also reasons for you to remain skeptical. It always best to hire an experienced franchise law attorney who can comprehensively review your agreement.
Florida Franchise Act: Misrepresentation
Under the Florida Franchise Act (FFA), specifically section 2(a)(1), it is illegal for a franchisor to knowingly misrepresent the likelihood of an investment’s future success. This is an important protection for franchisees because it gives them legal options well beyond those that would be available in a standard fraud case. As the court in Travelodge International, Inc. v. Eastern Inns noted, when it comes to claims regarding the misrepresentation of the odds of franchise success, the plaintiff is not required to prove that any one statement was intentionally false. Instead, the FFA standard for misrepresentation focuses on the totality of the sales pitch, and the growth estimates, made by the franchisor. If the total effect of all the conduct by the franchisor would have left an unreasonable expectation of success in the mind of an ordinary investor, then the FFA has been violated. At that point, the franchisor can be held liable. Ultimately, this means that the hurdle required to prove misrepresentation in a franchise law case is much easier to clear than it is in other business fraud cases.
Be Proactive and Remain Cautious
While the FFA does obligate honest, reasonable and good faith growth estimates from franchisors, all franchisees still need to proceed with caution. It is always best to have an attorney review your franchise agreement. Specifically, any estimates or projections of future growth and profitability. There are two main reasons for this:
- First, even if the franchisor is flagrantly violating Florida law, you will be much better off by not getting involved in the first place. A comprehensive review of your franchise deal can save you major headaches down the road.
- Further, the franchisor may fall short of violating Florida law, but they still might be providing you with overly optimistic estimates of growth. For example, the FFA only allows you to hold a franchisor liable if they were knowingly misleading you. What if the franchisor is merely just providing you a good faith, but flawed, estimate? An attorney can always help you assess all aspects of the agreement.
Contact An Experienced West Palm Beach Franchise Law Attorney
As a franchise investor, you are putting a lot on the line. The franchisor is legally obligated to treat you honestly and give you realistic growth estimates. Still, you need to proceed with caution. We can help review any franchise agreements, and in the event that you were misled, we will help get you justice. If you have any Florida franchise law questions or concerns, please contact the experienced attorneys at Pike & Lustig, LLP for additional information.