Clarity regarding financial obligations of franchisees
Franchisees generally have various long-term financial obligations towards the franchisor. This includes, for example, fee obligations, obligations with regard to contributions for advertising and promotion, rents in connection with possible subletting, as well as various other obligations such as (additional) financial obligations in the field of training, administration, additional marketing efforts, etc.
One of the most important principles of the European Code of Honor on Franchising is that it must be possible to deduce unambiguously from the franchise agreement how all financial obligations between franchisor and franchisee work together. This means that, for example, turnover-related sublease obligations must be integrated into the franchise agreement or must form part of the franchise agreement as an integral appendix. This may also relate to abruptly changing supplier credit, if the franchisor also has a wholesale function. Franchisees can suddenly find themselves in business difficulties as a result of such a change of course. By no means always does such an essential obligation – which does not take into account whether this last example has been agreed in advance – form part of the franchise agreement, or a very clear reference is missing, for example to general terms and conditions in which this is clearly and must be made transparent by the franchisor. After all, he is under the obligation, in accordance with the European Code of Honor on Franchising, to make essential financial obligations known in advance and, moreover, to record these in the franchise agreement.
Franchisees are therefore advised to assess all relevant documents (franchise agreement, sublease agreement, general terms and conditions, etc.) in advance when concluding the franchise agreement in order to prevent misunderstandings along the way. A good franchisor will of course proceed on its own initiative to explicitly indicate to the franchisees all essential financial obligations in advance. After all, he takes the European Code of Honor on Franchising as his starting point. If the franchisor is a member of the Dutch Franchise Association (NFV), he is also bound to do so at all times in accordance with the articles of association of the NFV.
Ludwig & Van Dam franchise attorneys, franchise legal advice
Other messages
Article Franchise+ – “Recipient’s liability in a franchise context, what exactly is that about?” – mr. K. Bastiaans – dated November 24, 2020
The phenomenon of hirer's liability means that a third party can be held liable for the debts of another under certain conditions.
Franchisor liable for errors made by a franchisee? – mr. AW Dolphijn – dated November 23, 2020
A franchise organization asked the court to declare that the franchisor is not liable if a franchisee has made a serious mistake with a customer.
The Real Intentions of the Parties to a Franchise Agreement – Mr. C. Damen – dated November 23, 2020
What really was the idea of the parties when they concluded a franchise agreement?
Circumventing the prohibition of competition in the franchise agreement – mr. AW Dolphijn – dated November 10, 2020
A non-competition clause in a franchise agreement is often experienced as objectionable by franchisees, especially if the non-competition clause also applies after the franchise agreement has expired.
Article Franchise+ – “How do I get rid of my debts: Also for franchisees and franchisors” – mr. AW Dolphijn – dated October 20, 2020
A reorganization may also be necessary for franchisees and franchisors who are in financial difficulties in order to continue to exist.
Article De Nationale Franchise Gids: “Reinvestment obligation for franchisees has limits” – dated October 13, 2020 – mr. RCWL Albers
In practice, it often happens that franchisors choose to renew their franchise formula and the appropriate image