The preliminary agreement

The European Code of Honor on Franchising has already been discussed in this series of articles. Article 3 of the European Code of Ethics deals quite extensively with the obligations a franchisor has with regard to the information he provides to so-called aspiring franchisees, ie before entering into a contract. This includes the manner in which a franchisor publishes (this must be unambiguous and not misleading) and provides information, including financial information, about the franchise organisation. The provision of information also includes the provision of the franchise agreement, a handbook, any (sub)lease agreement, as well as the provision of forecasts. In that context, it often happens that a franchisor decides to conclude a so-called pre-agreement with the prospective franchisee.

The main reason for a franchisor to do this is often due to the non-disclosure agreement that forms an important part of the pre-agreement. After all, if the data to which reference has just been made is provided, extremely sensitive information can be handed over, which must be prevented from (for example) reaching potential competitors. Such a preliminary agreement is also often used to insert a more or less “disguised probationary period” for the franchisee. Provided this is done in a clear and transparent manner, this can be an opportunity for both the franchisor and the franchisee to see whether the franchisee fits within the organization and whether independent entrepreneurship is also fully utilized. It should be clear that such a disguised probationary period is actually only possible and useful within a franchise organization in which the franchisee is not expected to make all kinds of far-reaching investments in advance that are necessary for the implementation of the franchiseeship. In other words, it only makes sense in principle for franchise organizations that have few initial investments or have a system in which those investments are first made when entering into the franchise agreement itself, to make use of a pre-agreement in such a way if desired. . Finally, it should be noted that a pre-agreement can also have the function of creating commitment on the part of the franchisee, as part of such a pre-agreement is often the payment of part of the entrance fee.

Ludwig & Van Dam franchise attorneys, franchise legal advice