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Charged for services we didn't get pricing for or agree to. What can we do?

Thornton, CO |

We are a franchisee for a company located in Denver. The franchiser contracted someone to do their paperwork because she wanted to update her franchise agreements. When the process began we asked if we would be charged any of his fees. We were told it would probably be $300-$400 which would be split between the other franchisees and the franchiser.

Throughout the process we requested certain addendums necessary for the changes being made to the agreement. We were never told there would be additional charges for the requesting of these documents, yet we just received an invoice for $4100.00. What are our rights?

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Attorney answers 6

Posted

It depends partially on what your franchise agreement says in terms of costs that the franchisor may pass along to its franchisees. As to the price quoted to you by the franchisor and the resulting invoice for $4100, much will depend on the correspondence related to the requests you made for addenda and the franchisor's written response to it. You should have an attorney review your documentation promptly.

Asker

Posted

Ultimately, the advisor & franchisor are stating this is part of the transfer fee for us purchasing another territory. However, the agreement states that the transfer fee ($5000) is to be paid by the seller. In this case we are the buyer. They are also threatening to block the sale of our existing business & franchise to a potential buyer unless we pay the fee, by telling them our agreement is not in compliance.

James A Marshall

James A Marshall

Posted

Regarding the sale of your existing franchise, do you have correspondence from them showing that they are requiring that you acknowledge non-compliance? Have you withheld any payments of royalties, ad funds, or other monetary items payable by you under your agreement?

Asker

Posted

No, we are not out of compliance with anything other than the fact that the franchise agreement has not been signed for the territory we are purchasing. They are writing into the new franchise agreement that the invoice for the adviser is our responsibility and must be paid on the execution of the agreement.

Neal Jonathan Blaher

Neal Jonathan Blaher

Posted

Just joining this discussion. Based on the exchanges you have had with Mr. Marshall following the original question, it seems clear that there are a lot more facts to the original question that need to be sorted out in an extensive meeting with an experienced franchise attorney out your way (Colorado). For example, is the drafting of a new franchise agreement the product of your bringing in a new franchisee to buy your business, and/or you purchasing a new territory to replace your existing one? All of this needs to be sorted through in the context of your rights and obligations under your existing contract. Good luck - A thorny web of issues indeed!

James A Marshall

James A Marshall

Posted

Mr. Blaher is correct. There are more complex issues involved and interwoven than raised by your original question that need to be addressed in detail. Keep one more thing in mind. If you are only contesting $4100 you will have to weigh that against the cost of hiring an attorney. Consult with an attorney soon and discuss your alternatives fully. Best of luck.

Posted

As a franchise attorney , who has actually walked the walk, owning and operating a very successful franchise, and a court-accepted, testifying franchise expert, I agree with my colleague.

Unfortunately, the questions you need answered are much more complicated than can be answered here.

No attorney here on AVVO can advise you without knowing all the facts and circumstances surrounding your case and the contracts entered into by the parties.

Your best bet is to consult with a franchise attorney asap. You can do a search here on AVVO and find them. Many will talk to you at no charge for an initial consultation.

Good luck!


Kevin B. Murphy, B.S., M.B.A., J.D.
Franchise Attorney & Franchise Expert
Director of Operations - Mr. Franchise
FRANCHISE FOUNDATIONS APC

Mario L Herman

Mario L Herman

Posted

I agree with Mr. Murphy. You need to contact qualified counsel immediately. The longer you wait, the worse it gets.

Posted

As noted by my colleagues, your rights depend in large part on your agreements. I am not entirely certain from your question exactly what occurred. It sounds like the Franchisor retained a firm to update the agreements, and that is usually a cost borne solely by the franchisor. It would be unusual for the franchisor to include a provision in the franchise agreement allowing it to pass on its legal costs associated with its own updates. Many agreements, however, allow the franchisor to recoup costs that were incurred because of a franchisee's request for changes. I would gather all of the correspondence associated with the legal work and your franchise agreement and fdd and take them to a lawyer who practices franchise law (most general practitioners do not understand the peculiarities of franchise law) to understand your rights. Many franchise lawyers will provide you with a free consultation.

This response is not intended as legal advice or to establish an attorney-client relationship. It is for informational purposes only.

Neal Jonathan Blaher

Neal Jonathan Blaher

Posted

See my comment with respect to your additional facts under Mr. Marshall's answer.

Posted

Speak with a local attorney with franchise expertise. Your agreement may allow them this right, but there are other issues at play that may give you various options. We have advised franchisers and franchisees and the review on this matter should be pretty quick.

This answer is for informational purposes only and is not legal advice regarding your question and does not establish an attorney-client relationship.

Posted

Generally, the franchisor has no right to charge you fee unless the franchise agreement specifically says that they can. As a first step, I suggest you ask the franchisor to show you the specific language in your franchise agreement which gives franchisor the right to charge you this fee.

Posted

I have practices franchise law over 20 years and am trying to understand your question, why would you ask for addenda? was this for your benefit? If the Franchisor had insufficient documentation, this can be in your favor as a franchisee you would not have to comply with an "obligation" which they say you agreed to put you actually didn't. Your question is a bit confusing, whose paperwork is being cleaned up--yours or theirs and why and to whose benefit this is for, yours or theirs. Then we can determine if charging you for something is appropriate or acceptable. Of course anything that the Franchisor did that is contrary that what you were told (do you have an email letter etc), is pretty straight forward of something amiss. Really need more details to assist you. Like what did they say when you told them "you told me it would only be 3-400"?? for example

The foregoing is for informational purposes only and may not be relied on as attorney-client advice.

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