Structurally unsound revenue forecasts from the franchisor
On 15 March 2017, the District Court of Limburg in eight similar judgments (including ECLI:NL:RBLIM:2017:2344) nullified the franchise agreements of various franchisees of the P3 franchise formula for error, because the turnover forecasts presented were unsound.
Before concluding the franchise agreement, prospective franchisees were provided with an information package containing a calculation model and a model business plan. Part of the calculation model is a calculation example with a turnover forecast for the first five years. Based on a realistic scenario, a turnover of no less than € 80,000.00 is forecast for a random franchisee in the first year. By entering some data in the associated calculation model, a prospective franchisee can also calculate his personal turnover forecast for the next five years. The completed calculation model always resulted in prosperous turnover forecasts in the present cases.
Not one of the ten franchisees has met the forecast and the majority have not even realized any turnover. This fact in itself already strongly substantiates the statement that the turnover forecast provided was unsound, as the difference between the forecasted turnover and the realized turnover is substantial and this occurs for all franchisees. However, this substantiation is not decisive, since the difference in turnover achieved and forecast may also have been caused by circumstances outside the franchisor, of which the franchisor could not reasonably have been aware when making the forecast. According to the court, it is therefore important to also check whether a sound market and business location study is the basis for the prognosis.
It is argued on behalf of the franchisor that it always concerns an estimate by two directors of the franchisor based on their own experiences as entrepreneurs within the sector in question.
However, it is unclear whether, and to what extent, the following circumstances have been taken into account in these estimates:
- the fact that the P3 franchise formula was not yet established;
- that the franchisees were all new to the industry;
- the franchisees still had to be trained and certified in the first year before they could start working independently;
- that the turnover data used showed a decline in turnover.
The court concludes that no proper market research was based on the turnover forecast and that the turnover forecast was unsound. The court nullifies the franchise agreements concluded.
Although it may be questioned whether the prospective franchisees were perhaps naive afterwards, the court ruled that the franchisees had no duty to investigate, given the incorrect statements by the franchisor. It seems that in particular the structurally flawed method used to prepare the forecasts and also the huge difference with the realized turnovers are attributable to the franchisor here.
mr. AW Dolphijn – Franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to dolphijn@ludwigvandam.nl .
![238shatter](https://www.ludwigvandam.nl/wp-content/uploads/2020/12/238shatter.jpg)
Other messages
Franchise Law
Franchise Law
Reducing the risk of fictitious employment
Recently, the new Minister of Social Affairs, De Geus, made the choice that he wants to put an end once and for all to the discussion whether there is self-employment or a
Bound by non-compete clause after expiration of the
The vast majority of franchise agreements contain a so-called post-contractual non-compete clause (hereinafter referred to as “non-competition clause” for brevity).
Severance schemes in the event of (premature) termination of the
Retirement schemes Franchise agreements and comparable cooperation agreements regularly include a regulation to the effect that the rights under that agreement
Delivery obligation?
Many buyers, including franchisees, are of the opinion that there is a delivery obligation in the Netherlands, meaning that suppliers are obliged to deliver goods if a potential
Internet in franchise relationships
If, in the context of a franchise relationship, internet and e-commerce are discussed in order to sell the goods/services of the franchise organization digitally