Cooling off Period

One of the critical laws governing franchise sales is the “cooling off” period. The cooling off period is recognized by the FTC as a mandatory period of time, in which a new franchisee has the right to get their money back should they change their mind and decide not to follow through on the purchase of a franchise. The cooling off period is part of the overall disclosure laws which include certain required pre-sale disclosures and prohibited practices. A franchisor is prohibited from taking money for the sale of a franchise until at least 5 days have passed since the delivery of the personalized franchise agreement.

The Franchising Code of Conduct, guarantees that any money paid to the franchisor is to be refunded within a two week period. This gives the prospective buyer time to consult with their franchise attorney about the details of the deal if they have not already done so. There is no guarantee, however, that you will get a full refund. Franchisors may deduct a “reasonable fee” from the proceeds you paid and refund only the balance. Such fees are generally set-up fees that the company incurred while establishing your business.

The cooling off period basically prevents a person from being taken advantage of and making a rash decision. Slick brochures promote and professional franchise salesman are trained to make a franchise seem bigger and sometimes better than it really may be. Rather than rely on the cooling off period, it’s a better idea to consult with a knowledgeable and experienced franchise attorney who can help you make sense of the franchise agreement.

Don’t fall for aggressive sales techniques or promotions, which urge you to sign up today or you’ll lose out. Such offers can be of the nature of a guarantee of financing or a guarantee of a low-interest rate on your loan, in exchange for your immediate decision. Others may agree to lower their franchise fee in exchange for your expediency in making a decision. The trusted saying, “if a deal sounds too good to be true, it probably is”, applies to making a snap decision to buy a franchise, as well as anything else in business. Take your time, do your homework, and consult with your team of trusted professionals, including your franchise attorney, before paying a penny to buy a franchise.