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 Mr. C. Damen – “When does the obligation to provide proof apply for the submission of the franchise agreement?” dated August 17, 2020
Does the obligation to produce information apply to showing a (franchise) agreement in proceedings if the parties to the proceedings do not have a legal relationship to the (franchise) agreement?
Article Mr. AW Dolphijn – “How do you value a franchise company with a discharge loan?” – dated August 14, 2020
A discharge loan is a proven means of franchisors to find long-term franchisees.
Article De Nationale Franchise Gids: “Information obligations of the intended franchisee under the Franchise Act” – dated August 7, 2020 – mr. AW Dolphin
Although the purpose of the Franchise Act is to protect franchisees against franchisors, a number of obligations have also been laid down for franchisees.
Legislative text of the Franchise Act – dated July 24, 2020 – mr. AW Dolphin
The legal text of the Franchise Act was published in the Staatsblad on 1 July 2020. The full legal text reads as follows:
Law Franchise – dated July 23, 2020 – mr. AW Dolphin
The Franchise Act will have a considerable impact on both franchisors and franchisees.
Contractual dissolution requirements not observed? No legal dissolution of the franchise agreement – dated July 23, 2020 – mr. C. Damen
Can a franchisor terminate the franchise agreement if it has failed to comply with its own contractual requirements?