Turnover and result: the principle of prudence
In various countries in the world, franchising is subject to increasingly stringent regulations. In general, these regulations mainly focus on what is so nicely called “pre-contractual disclosure” in English, known here in the Netherlands as pre-contractual information provision. In the Netherlands we find some rules in this regard in the European Code of Honor regarding Franchising, to which the members of the Dutch Franchise Association are bound in principle. Legislation, however, is not. In short, this means that prior to entering into a contract, a franchisor adequately informs its prospective franchisee(s) with regard to the turnover to be achieved with the franchised company and, more importantly, operating results. In France, an obligation to provide information in this regard has been included in legislation, in the United States and Australia, for example, this obligation extends much further. As mentioned, no such obligation has been included in legislation in the Netherlands, but it remains limited to the framework of the European Code of Honor. Nevertheless, and this has been discussed several times in this section, the provision of information that is as adequate as possible prior to the conclusion of a contract is of the utmost importance. Franchisees have a right to know what they are getting into. Incomplete or incorrect provision of information, leading to the conclusion of a contract, can also lead to substantial liabilities and problems in the business operations of both the franchisee and the franchisor. It is therefore not without reason that various countries have included this in legislation. Unlike in the Netherlands, there is therefore no freedom of choice regarding whether or not to present turnover and result forecasts.
In the Netherlands, there is that freedom of choice. A franchisor can therefore always refrain from giving indications about the turnover and results to be achieved with the franchise company. If a franchisor does provide such information, it should be recalled once again that this information must be based on a thorough and adequately conducted market and location survey, specifically tailored to the franchisee’s intended establishment in question. A critical attitude from the franchisor’s side to the results of such research is also appropriate, even if it is carried out by a market research agency. Due diligence must always be leading. The matter is important enough for that.
Ludwig & Van Dam franchise attorneys, franchise legal advice
Other messages
Is the end of the lack of evidence in prognosis cases in sight?
For many years, the franchise agreement has been, as it is called, an unnamed agreement.
Ex-Franchisee sentenced to rectification at EenVandaag after unacceptable statements
Very recently, the President has ruled in interlocutory proceedings that the franchisee has made statements, the correctness of which has not been established.
Jumbo’s refusal to convert C1000 is definitely subject to appeal
A sad outcome for a C1000 franchisee, of which the preliminary relief judge of the court in Amsterdam
Jumbo refuses to convert C1000 and claims the franchise company
An apparently remarkable outcome about a C1000 franchisee, of which the preliminary relief judge of the court in Amsterdam
Franchisor hinders litigation – An unbalanced arbitration clause
It has been agreed in a franchise agreement that disputes will be settled by arbitration, to be held in New York, in the English language.
DA Drugstore head office clashes hard with franchisees
DA Drugstore head office clashes hard with franchisees