The rights and responsibilities of the Franchisee and Franchisor are defined within the Franchise Agreement and Franchise Disclosure Document (“FDD”). Site selection has emerged as a trap if not addressed within the franchise agreement. Traditionally, “A Prospective Franchisee is encouraged to perform his own investigation and evaluation before entering into a Franchise Agreement.” See Konold v. Baskin-Robbins, Inc., 87 F.3d 1327 (10th Cir. 1996).
In Yamin v. Moe's Southwest Grill, LLC (2011 NY Slip Op 4803), the Court held that franchisees were protected so long as the franchisor considered the site within the existing framework of site selection policies. Thus, the franchisor was permitted to reject the site proposed by the franchisee since the franchisor acted in good faith when it rejected the proposed site.
If the franchise location underperforms, franchisees will question franchisor approval of the site. Selection standards, inclusive of franchisee input while protecting the interest of the brand, are the best practice!
You can read the full article, “Site Selections: Guarding Against Lawsuits,” at: http://www.franchiseupdate-digital.com/franchiselawnews/2011Q3#pg6.