Duty of care franchisor in the pre-contractual phase
The District Court of Limburg ruled on 6 April 2017, ECLI:NL:RBLIM:2016:2843, that the franchisor has a duty of care towards the prospective franchisee in the pre-contractual phase. This means that the franchisor is also obliged in the pre-contractual phase to provide assistance and advice to a prospective franchisee. The Court of Appeal of ‘s-Hertogenbosch upheld the judgment on 17 April 2018, ECLI:NL:GHSHE:2018:1607.
The prospective franchisee had entered into a confidentiality agreement with a franchisor. This includes, among other things, that the aspiring franchisee will keep all information that comes to his knowledge in this context confidential from third parties and that the information provided will not be used in such a way that the interests of other parties involved will be harmed.
Subsequently, the prospective franchisee was provided with an operating forecast showing that the gross margins in the first 3 years amounted to between 27% and 29%. Inquiries with the Franchise Council show that the average margins of other franchisees over the previous 3 years are between 23.3% and 26.9%.
The aspiring franchisee breaks off negotiations at the last minute to enter into a franchise agreement and then contracts with a competing franchisor organization. This abort took place as a result of the fact that the gross margins of other franchisees of this franchisor turned out to be lower than had initially been predicted by the franchisor to the prospective franchisee.
According to the Court of Appeal, the backgrounds of the parties also play a (limited) role and the franchisor’s vision is also not followed in the position that the prospective franchisee should not have broken off the negotiations. Although the parties had jointly found a suitable building to exploit the franchise company, the prospective franchisee did not act unlawfully by going into business with a competing franchisor organization after the negotiations had broken off.
This ruling shows that, particularly in situations where a prospective franchisee will find himself in a dependent position, the franchisor must ensure that it provides the necessary assistance and advice. With the conclusion of a letter of intent or preliminary agreement, other than just a non-disclosure agreement, the duty of care can be regulated in the negotiation process, which is recommended.
mr. AW Dolphijn – franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to dolphijn@ludwigvandam.nl .
![239handshake](https://www.ludwigvandam.nl/wp-content/uploads/2020/12/239handshake.jpg)
Other messages
Franchisee circumvents non-competition clause through partner – mr. RCWL Albers – dated February 24, 2022
In a recent case, a graphics services franchisor attempted to ...
Article De Nationale Franchise Gids: “Changing the franchise formula is possible” – mr. T. Meijer – dated February 8, 2022
Many franchise formulas are constantly evolving. The adage 'to stand ...
Corona justifies halving the franchise fee – mr. RCWL Albers – dated February 1, 2022
In a recent ruling by the Amsterdam Court of Appeal, ...
Can a franchisor increase the interim franchise fee and change the formula? – mr. AW Dolphijn – dated January 21, 2022
A franchisor must be able to adjust the franchise formula ...
Franchise agreement with free PLUS entrepreneur canceled – mr. AW Dolphijn – dated January 19, 2022
It is not often that a supermarket organization terminates an ...
Article De Nationale Franchise Gids: “Franchisee exclusively bound by a non-compete clause as a private company” – mr. M. Munnik – dated January 11, 2022
On December 22, 2021, the Rotterdam District Court issued an ...