Press Releases

FOR IMMEDIATE RELEASE - July, 23, 2003

AAFD Adopts New Fair Franchising Standards

San Diego, CA: The American Association of Franchisees and Dealers (AAFD) has announced the adoption of three new Fair Franchising Standards, and has further announced a new printing of the entire Standards to be published in August, 2002.

The new standards define exemplary practices in three distinct aspects of a franchise relationship:

  1.  The use of personal guarantees in a franchising transaction.
  2.  The rights of a franchisor to sell or transfer the entire franchise system.
  3.  The use of so called "gag order" agreements to keep the settlement of disputes confidential.

AAFD Chairman, Robert Purvin reported, "These new Standards continue the AAFD's leadership in defining and promoting exemplary franchising practices. Equally important, these new standards continue our tradition of protecting the legitimate interests of franchisors and franchisees through a negotiated process. Enormous credit goes to our Standards Committee Chair, Richard Rosen, for his dedication to fairness, and to our entire Committee for their hard work and dedication to defining quality franchising practices that are fair to everyone."

Rosen, a nationally recognized franchise attorney from New York, was complimentary to the Committee as well. "Bringing franchisors, franchisees and attorneys together to negotiate common ground always seems like a daunting task, but the miracle of the AAFD Standards has been the constant dedication to develop and define franchising practices that our entire community can live under and benefit from. I continue to marvel over the consensus that we have developed for fair play in franchising."

Rosen described the effect of the three new standards:

"The AAFD has recognized that personal guarantees may be appropriate when a franchisor looks to the principals of the purchaser of the franchise for the ultimate performance of the franchisee's obligations, but the new standard suggests that guarantees should be negotiable.

The second adopted standard recognizes the right of a franchisor to sell the franchise system, but imposes a duty to exercise the right responsibly and give due consideration to the transferee's ability and intent to support the system and to assume the franchisor's obligations as set forth in the franchise agreements.

The new standard regarding "gag orders" recognizes the practical need for non-disclosure provisions in order to encourage the settlement of disputes, while calling for the disclosure of the existence of such gag 'orders' in the franchisor's Uniform Franchise Offering Circular."

AAFD first announced the adoption of its Fair Franchising Standards in June of 1996, with the introduction of over 70 standards of exemplary franchising practices. Through June of 2002, the Association has promulgated, 119 standards of conduct respecting virtually every facet of the franchising relationship. The Standards serve several purposes:

  1.  Provide guideposts for the negotiation of fair and balanced franchise agreements and relationships
  2.  Provide assistance to investors in determining what constitutes a good franchise opportunity.
  3.  Provides the AAFD with criteria to award its Fair Franchising Seal, the AAFD's Accreditation program for fair-minded franchise companies that have adopted exemplary franchising practices.

Said Rosen of the continuing effort of the AAFD Standards Committee, "Of course, our work will never be fully completed. We have about a dozen more standards under consideration, with more to be developed and revised as franchising continues to evolve."

Rosen added that the Standards Committee is also working on providing detailed commentary to further elaborate on the adopted standards, and has also established a task force to draft a model franchise agreement that fully conforms to the AAFD Standards.

In order to earn the franchising seal, the nominated company's franchise agreement must be consistent with the spirit of AAFD's Fair Franchising Standards, and the company must receive approval from at least 75% of its franchisees in a confidential survey conducted by the AAFD. In the past 5 years, the AAFD has awarded its Seal to 13 brands, and has several franchisors under review. Said Purvin, "AAFD Accreditation provides a positive barometer of good franchising to investors, and provides a positive inducement for franchisors to negotiate its franchise relationship on a collective basis."

Last October, Lexington Insurance Company, an AIG Company, and the world's largest underwriter of franchisor E&O policies, announced that it would offer reduced premiums to AAFD Accredited Franchisors. According to Purvin, "Lexington's announcement reflects the obvious conclusion that negotiated agreements based upon our Standards will lead to fewer disputes and fewer claims and that this environment will justify lower premiums."

Commented Purvin, "The importance of the AAFD Fair Franchising Seal is that it rewards exemplary practices in the franchising marketplace. With the Seal, franchise buyers have a legitimate standard by which to judge a franchise opportunity - The Seal represents an effective vote of confidence and approval by the system's own franchise owners."

The American Association of Franchisees and Dealers is the oldest and largest direct member non-profit trade association representing the interests of franchisees and independent dealer networks throughout the United States. Stressing market solutions and franchisee empowerment through independent franchisee associations, the AAFD has grown to represent more than 12,000 franchised businesses nationwide.

For more information, contact the AAFD at 800-733-9858, or visit our website.