A recent court case has highlighted the need for franchisees to do their homework before signing a franchise agreement.
A franchise cafe chain was found to have engaged in misleading and unconscionable conduct while persuading potential franchisees to sign up to an agreement.
Blake Palmer, litigation partner, Baybridge Lawyers, Sydney explains: “The Federal Circuit Court held that Gelare International Pty Ltd, a franchisor for a caf business, made various significant misrepresentations to Palis Victoria Pty Ltd, its franchisee, prior to the franchise agreement being entered into.
“For instance, it was represented to Palis that it would be able to operate the only caf on level three of the shopping centre.
“In addition, Gelare made various representations in relation to the financial viability of the caf and the provided financial forecasts to Palis.
“The Federal Circuit Court held that these and other statements were misleading or deceptive and unconscionable as Gelare had no reasonable grounds to make them and the statements were found to be incorrect.”
Because the franchisee relied on the statements before signing the franchise agreement and had sustained significant loss and damage, Gelare was ordered to pay damages in the sum of $788,980.
Franchise buyers are advised to always do their own research before investing in a business. Ideally this would include seeking independent expert advice on the financial viability of the franchise business.
Read more: