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
Supermarket letter – 26
Supermarket Newsletter No. 26
Link franchise agreement and rental agreement uncertain? – dated October 14, 2019 – mr K. Bastiaans
It is no exception within a franchise relationship that the parties agree that the franchise agreement and the rental agreement are inextricably linked.
Termination of franchise agreement in case of changes in leased retail space – September 27, 2019 – mr. AW Dolphin
Termination of a franchise agreement in light of a substantial change in the leased retail space.
Article De Nationale Franchisegids: “Distribution of (potential) customers prohibited?” – September 17, 2019 – mr. AW Dolphin
Within many franchise organizations, agreements are made about the recruitment of (potential) customers in a certain area.
District protection no protection against termination due to urgent own use – dated September 17, 2019 – mr. AW Dolphin
As a landlord, can the franchisor terminate the lease for urgent own use, in the sense of district protection, while this would be excluded on the basis of the franchise agreement.
Unreasonable compensation at the end of the franchise agreement – dated September 17, 2019 – mr. AW Dolphin
Some franchise agreements stipulate that the franchisee always owes the franchisor a minimum of a certain amount of costs upon termination of the franchise agreement.