I always describe a Prior Representations Deed to franchisors as a "cover your butt" document.
When explaining a Prior Representations Deed to franchisees I advise them to take the deed very seriously.
The deed is all about misleading and deceptive conduct.
Generally, this deed should form a part of your franchise suite of documents. Sometimes it will be included in the franchise agreement itself.
I am not a fan of including the deed in the franchise agreement as it may necessitate the re-signing of the whole franchise agreement.
The aim of the Prior Representations Deed is for the franchisee to lay on the table any representations it believes were made prior to it entering into the franchise agreement.
If representations were made then the franchisor needs to be aware of them and to consider if it is willing to proceed with the franchise agreement. For instance, the franchisor's recruiter may have represented to the franchisee that it will earn $100,000 per year. The franchisor may not be aware the recruiter has made this representation. If the franchisee discloses this representation then the franchisor will have the opportunity to decide if the franchisor is willing to effectively guarantee to the franchisee that it will earn that amount. The franchisor may elect not to proceed with the franchise agreement to avoid a potential future action for misleading and deceptive conduct.
Alternatively, the franchisor may have given indications of certain matters but not intended them to be a representation upon which the franchisee should rely. If the deed brings to light that such confusion has arisen then it allows the parties to discuss these matters and clarify any confusion before proceeding with the franchise agreement. For example, a franchisor may advise the franchisee of the earnings of other franchisees. The franchisee may have understood this to be a representation that it will also earn that amount. By indicating this in the prior representations deed the franchisor is able to clarify the situation.
Of course, for it to be of any benefit to the franchisor, the Prior Representations Deed needs to contain a warranty or similar by the franchisee that it has recorded all representations made to it and it should be a bar to any action.
Many franchisees do not understand the importance of this deed.
If a franchisee is relying upon a representation in deciding to enter into the franchise agreement then it must be recorded here. If not, and the representation turns out not to be true, then the franchisee may have no recourse.
If a franchisee says there have been no representations and then later tries to say they did rely upon representations then the franchisee may have misled and deceived the franchisor and the franchisor may have recourse against the franchisee.
Prior Representations Deeds are important and valuable for both franchisees and franchisors. If nothing more, they help to ensure both parties are on the same page when entering into a franchise agreement.
If you don't have this deed in your franchise suite of documents as a franchisor, then get one.
If you are asked to complete and sign one as a franchisee then take the deed very seriously.
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