Franchisor Environmental Liability for Previously Contaminated Property

Environmental legislation has created potential liability for retailing franchisees that purchase previously contaminated land. Because of the quasi-integrated nature of the franchise relationship, the franchisor also may be drawn indirectly into liability for its franchisee's cleanup costs. The franchisor has two options to reduce its chance of liability. Faced with a decision to distance itself from the site selection process or incur the added costs and potential pricing impacts of greater involvement in the process, franchisors have strong incentives to reduce franchisee support. This reduction in support has detrimental implications for both franchise policy and environmental policy. The authors report the results of an empirical study that links franchisors’ concerns about potential environmental liability to actions to distance themselves from the site selection process or, alternatively, formally to require franchisee environmental investigation of all prospective properties.