Who is responsible for estimating franchise start-up costs? If a Canadian court decision has any say on the matter, it is a joint responsibility. The franchisor has a responsibility to accurately estimate the start-up costs and the franchisee has the responsibility to inquire and investigate whether or not those estimates are accurate.

The Canadian court’s test case involved Wrapcity Gourmet Restaurants. The prospective franchisee was given the franchise agreement as required by law and discussions took place regarding start-up costs in their chosen location. A year later the franchisee went out of business and sued the Wrapcity claiming that they had underestimated the franchise start-up costs at $100,000 when in reality, the costs were closer to $275,000. The franchisee sued for the return of the franchise fees and damages.

The court found that the franchisor acted within their boundaries because the franchisee did not request a detailed list of start-up expenses based on their unique location, such as a list of equipment, a list of leasehold improvements, nor specs for the construction of the franchise. No fraud was found on the part of the franchisor as it was determined that both parties failed to properly analyze the true costs of opening and operating the franchise. The court determined that the difference between the two costs was a simple error and denied the franchisee’s requests, instead, ordering the franchisor to return one-half of the start-up costs paid by the franchisee.

If you think that a franchisor has misrepresented the start-up costs for opening your franchise business, you can sue them for reimbursement of the costs and damages. As a prospective franchisee, it is your responsibility to seek a detailed listing of each and every item you will have to pay to start up the business. A round number based on the past experience of others will not do. Call franchise attorney Marion L. Herman today to discuss what to expect when starting a franchise business.