FRANCHISOR ENVIRONMENTAL LIABILITY FOR PREVIOUSLY CONTAMINATED PROPERTY

Environmental legislation has created potential liability for retailin g franchisees that purchase previously contaminated land. Because of t he quasi-integrated nature of the franchise relationship, the franchis or also may be drawn indirectly into liability for its franchisee's cl eanup costs. The franchisor has two options to reduce its chance of li ability. Faced with a decision to distance itself from the site select ion 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 detriment al implications for both franchise policy and environmental policy. Th e authors report the results of an empirical study that links franchis ors' concerns about potential environmental liability to actions to di stance themselves from the site selection process or, alternatively, f ormally to require franchisee environmental investigation of all prosp ective properties.