Disclosure obligation versus obligation to investigate when purchasing a franchise company, Who bears the risk?

Court of Amsterdam

In a judgment of 27 January 2015 (ECLI:GHAMS:2015:195), the Amsterdam Court of Appeal confirmed  that the tenant of a snack bar, when entering into the lease agreements for the business space and the inventory, must in principle be able to rely on statements from the prospective landlord regarding the historical turnover and that the tenant is not under any obligation to investigate if there was no special reason to doubt its correctness. If those turnovers are incorrect afterwards, this is therefore reason to annul the agreements entered into on the basis of error.

In the present case, a snack bar and inventory relating to a snack bar acquired by the lessor from a bankruptcy estate were already (sub)let to a successor operator after a short period of time. The turnovers of both the bankrupt entrepreneur and his successor/landlord, who had only recently taken up the operation, were reported. After the start by the successor entrepreneur, it turned out that the reported turnovers were not correct, or at least could not be correct because they did not correspond with the purchase invoices. Although the subdistrict court still believed that the successive entrepreneur should have done his homework better by verifying the reported turnovers himself in advance and therefore rejected the claims, the Court of Appeal, on the other hand, is of the opinion that if no special circumstances give rise to this, it may in principle be relies on the bids of the prospective contracting party. In franchise and prognosis cases, this ruling once again indicates that judges have different views on the responsibilities of contracting parties in these types of situations. In order not to be dependent on this, it is therefore important to agree in advance who will take what responsibility and who will or will not guarantee the correctness of communications. In any case, further investigations can then be carried out in advance if necessary.

Mr J. Sterk – Franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Mail to Sterk@ludwigvandam.nl