Article The National Franchise Guide: “Minimum turnover as a forecast”

For many years now, the responsibility and liability of the franchisor for forecasts or sales expectations issued by it has been the subject of numerous proceedings. Case law determines when there are forecasts and when the franchisor can be held liable for this and when the franchisee is entitled to rely on error. The Franchise Act also includes provisions that, in line with case law, establish this liability and responsibility for both the franchisor and the franchisee. The franchisor is given a far-reaching obligation to provide (financial) information and the franchisee must investigate this information.

In the case that was submitted to the subdistrict court in Leeuwarden, the franchisee also tried to annul the franchise agreement by invoking error. It concerned a dispute in which the franchisor operates a formula that deals with training, education and coaching. The franchisee was offered a franchise agreement, which he signed, which included a minimum turnover. This minimum turnover was the basis for the (minimum) fee calculation and formed a ground for termination for the franchisor if this minimum turnover was not achieved.
The franchisee has argued in the proceedings that by using this minimum turnover, the franchisor has in fact issued a forecast. Now that the franchisee has not achieved this minimum turnover, he has nullified the franchise agreement by invoking error. The franchisor has contested that there are forecasts, let alone that a justified claim of error has been made. The franchisor filed a counterclaim to establish that the franchise agreement has not been nullified and has been upheld so that the franchisee continues to pay the contractual minimum fee.

The subdistrict court has ruled that the minimum turnover has been included as standard in all franchise agreements by the franchisor and that the minimum fee is calculated on the basis of this minimum turnover. The franchisor has also built in a cancellation option for itself to be able to say goodbye to the franchisee if the minimum turnover is not achieved. In the opinion of the Subdistrict Court, all these circumstances lead to the fact that the franchisee could have regarded this minimum turnover as an indication from the franchisor that this minimum turnover was realistically achievable. The inclusion of this minimum turnover is therefore seen as issuing a forecast of the expected turnover. The claim of error by the franchisee therefore does not concern only a future circumstance that this turnover has not been achieved, in which case no claim of error can be made, but is aimed at the fact that the forecast issued is not a realistic turnover to be achieved.

In this case, the franchisor had built up the calculation of the minimum turnover from a minimum number of training days per year against the corresponding rate. The franchisor has calculated that, based on 45 working weeks per year, the franchisee must complete at least one training day per year. Based on this, and after rounding down, it is contractually stipulated that the minimum turnover per year is € 75,000. This marked the beginning of a sound substantiation of this minimum turnover. According to the subdistrict court, the franchisee has not been able to demonstrate that this calculation was based on incorrect assumptions. In fact, the franchisee had left this calculation completely unchallenged. The subdistrict court therefore ruled that although a forecast had been issued, the franchisee had not been able to demonstrate that it had been unsound. Entirely in line with the applicable jurisprudence, the franchisee is entitled to invoke error if it is demonstrated that the prognosis issued was unsound.

In this case, the franchisee’s appeal for error and the annulment of the franchise agreement has been rejected on this basis. The Subdistrict Court’s ruling on the minimum turnover has therefore not had any adverse consequences for the franchisor. However, this statement serves as a warning that the minimum turnovers included in the franchise agreement can be assessed as forecasts. If there is subsequently no proper substantiation of this minimum turnover, such a judgment can have far-reaching consequences and may even lead to liability on the part of the franchisor. The inclusion of minimum turnovers should therefore not only be assessed from the basis of the franchisor’s earnings model, but must also have a sound substantiation showing that the minimum turnovers included are realistic.

mr. T. Meijer
Ludwig & Van Dam lawyers, franchise legal advice.
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