As is well known, a good franchisor offers its franchisee a sound investment exploitation forecast at the start. It should be possible to derive the turnover and the result for the franchisee for a period of, for example, three years from this investment/exploitation forecast. It goes without saying that the franchisee has a great responsibility in this respect, by actively convincing himself of the correctness of the prognosis provided. If this prognosis is clearly incorrect, and the franchisee cannot be blamed for his efforts and diligence, then the responsibility for this can, under certain circumstances, be traced back to the franchisor. After all, as an experienced party with regard to the pretended success formula, he is expected to properly assess the correctness of the prognosis.
What is the situation now with the reorganization of the franchise formula? Are the responsibilities identical in the case of a major restyling, for example?
Every franchise formula has to deal with modernization and adaptation of the formula from time to time. Fashion chains, for example, usually have fast retail cycles. More than once, this means that substantial reinvestments must be made every few years. Sometimes this reinvestment takes place by the franchisor, suppliers and franchisees together, but sometimes a franchisee is faced with a very drastic reinvestment in the refinancing of his company. This situation is comparable to a pre-contractual phase. This means that the franchisor is also largely responsible for correctly assessing the feasibility and degree of success of the restyling. In that context, a good franchisor will once again provide a sound investment and operating forecast for a period of, for example, three years. Of course in that situation the franchisee has more experience than before. However, in the dependency relationship in which the franchisee also finds himself, the franchisor is nevertheless expected to adequately and correctly assess the correctness of this.
The franchisor and franchisees would be wise to proceed to a possible restyling on the basis of consensus and to make agreements for the rest if this unexpectedly turns out to be disappointing in individual situations.
Ludwig & Van Dam franchise attorneys, franchise legal advice