You can’t be everywhere and do everything. But, you want to expand quickly. One mechanism is an area representative arrangement. An area representative helps find, train, and supports franchisees.
This is the expansion mechanism that Titled Kilt Pub & Eatery [Titled Kilt] employed. However, something went awry. When selling franchises, Titled Kilt’s area representative -1220 LLC, allegedly provided prospective franchisees with false performance representations. 1220 LLC told a prospective franchisee that he could potentially make billions of dollars. A prospective franchisee took the deal, and in fact bought 2 Title Kilt franchises. When the franchise business lost money, the franchisee ran to the Title Kilt franchisor demanding a refund of the initial franchise fee. The evidence was conclusive, 1220 LLC sent an email to the then prospective franchisee with the false franchise finance performance representations. A second investor claims that 1220 LLC also gave false information.
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If in fact, a false or improper performance representations were made, the franchisee may be entitled not only to the return of the initial franchise fee, but also compensation for any monies expended in buying the franchise, start-up costs, and lost profits.
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Under this relationship, the area representative, can well be seen as an agent for the Title Kit franchisor making the Title Kit liable. Tilt Kilt did the right thing. They trained 1220 LLC about the do’s and don’ts of selling franchises and giving false performance representations. When the improper conduct of the 1220 was learned, Title Kilt sought to terminate the 1220 LLC’s area representative agreement.
When selling franchises, entering into area representative agreements, referral and broken relationships it is important to:
- · Educate folks about the franchise sales processes and the applicable laws;
- · Have prospective franchisee complete questionnaire before signing the franchise agreement asking yes and no about legal sales processes. If is noted that if proper sale processes were not followed, don’t sell the franchise;
- · Take immediate and quick action regarding any reported improper franchise sales practices.