In practice, we have recently seen more and more developments that point to a conversion/restyling of the franchise organization, for which the franchisee must reinvest.
An important question in such a situation is whether the existing franchise agreement offers the possibility of realizing such a conversion/restyling of the entire franchise organization?
If a provision is included in the existing franchise agreement from which, in short, it follows that the franchisee can be obliged, at the franchisor’s request, to cooperate in a “collective conversion/restyling” of the organisation, then the franchisee can (in principle) must also be adhered to. It is important here who is expected to bear the costs for the conversion/restyling.
If the franchisee is expected to make a significant contribution to this, it is important that the franchisor preferably provides forecasts that are geared to the new situation, in order to be able to take the consequences of the conversion into account. This is all the more pressing now that this situation can be compared with the situation of the so-called pre-contractual phase. After all, even in the situation of a major restructuring of the organization, the franchisor must cover the investments to be made by the franchisees with the necessary care obligations.
If a reinvestment is of a limited nature, a prognosis may be omitted, although in such a situation a franchisor should also ask himself to what extent the reinvestment will have a negative effect on the franchisee’s organisation. If it is a considerable investment, the franchisor should, as already stated above, ask himself whether the investment actually leads to an improvement in turnover or whether a loss of turnover is prevented. In addition, the requested investment must be justified in relation to the operating result of the franchisees involved. In short, this must be done with the necessary caution and policy. This will be discussed in more detail in one of the following articles.
Ludwig & Van Dam franchise attorneys, franchise legal advice