Franchise agreements are well known for being the cause of disputes between franchisee and franchisor, so if you are considering taking on a franchise, it is important to take professional advice first.
Recently, well-known franchisor Kall Kwik UK Ltd. was in court after a new franchisee sued it because estimates provided by Kall Kwik for refitting costs turned out to be much lower than the actual figure – a difference of between £15,000 and £30,000.
Kall Kwik had used the low estimate twice, including in a cash-flow forecast. This had a disclaimer, which relieved Kall Kwik from responsibility except in the case of fraud and which advised the user to obtain independent verification of its contents.
A second disclaimer was to be found in the franchise agreement itself. This excluded liability for misrepresentation in inducing the franchisee to enter into the agreement, but not for the performance of the agreement itself.
The court found Kall Kwik was liable for the franchisee’s additional costs because the franchisee had suffered a financial loss which was reasonably foreseeable and which arose as a consequence of a breach of the duty of care that Kall Kwik owed to the franchisee.