Ahead of the Consumer Protection Act regulations that should reflect FASA’s Code of Ethics and as a result of some complaints received by FASA, it is disturbing that some franchisors, whether FASA members or not, have been taking deposits from prospective franchisees and then are stalling when it comes to refunding those deposits when potential franchisees are not accepted for whatever reason.
According to Ian Jacobsberg, of Eversheds, a FASA Council Member, “it is reasonable for a franchisor to ask for a deposit as a show of intent to purchase a franchise, given that the franchisor must incur expense in assessing the franchisee, carrying out credit checks and preparing the necessary paperwork, including the disclosure document and draft franchise agreement. FASA’s Code of Ethics and business practices requires a franchisor to deposit any monies received from a prospective franchisee into a separate bank account or attorney’s trust account and to refund the amount received if a franchise agreement is not concluded, less any reasonable out-of-pocket expenses that the franchisor may have incurred. Too many franchisors deposit these monies into their own bank accounts, and use them to fund their businesses, with a result that, in some cases, the money is not available to be refunded if the transaction is not concluded.”
The executive committee of FASA intends to address this issue within their Code of Ethics and take measures against any of its members who are guilty of transgressing the refund of deposits.
Click here to see full article and Clause 9.15 of the FASA Code of Ethics pertaining to Refund of Deposits.