The franchise contract and the pre-contractual information duty
Franchising is a common way of developing a business concept but one that is subject to strict rules under French law.
Before signing a franchise agreement a franchisor must comply with certain special legal requirements, one of which is a pre-contractual information duty.
The franchisor’s pre-contractual information duty goes beyond the general rule of contract law that both parties to a contract must inform each other of the information that may be relevant for the other party’s consent.
Article R.330-1 of the code de commerce, which applies specifically to franchise agreements, gives a list of information that must in all cases be provided by a franchisor to a franchisee.
This includes information about the identity of the franchisor, the development of its franchise network, information about the other franchisees (specifying their mode of operation), as well as the other terms of the proposed contract, in particular its duration and the possibilities of renewal and termination.
This information must be made available to the franchisee at least 20 days before the final contract is signed.
Failure to comply with these obligations is subject to both civil and criminal sanctions. A franchisor who fails to comply with his obligations may face a criminal fine of up to €1,500.
In addition, a franchise agreement that is entered into without the franchisor having fulfilled his pre-contractual information duty may be rescinded at the request of the franchisee, when the latter demonstrates that his consent has been vitiated.
A breach of the pre-contractual duty to inform can thus have serious consequences for the franchisor.
A question of interest to various stakeholders in the franchise industry is whether a turnover forecast should be provided by the franchisor.
The position of the French courts is that a turnover forecast is not part of the information that must be provided by the franchisor.
However, if the franchisor decides to provide such a forecast anyway – perhaps to convince the potential franchisee that it will be a sound economic choice to enter into the franchise relationship – the franchisor must ensure that the forecast is reasonably accurate.
In some cases, the courts have ruled that the franchise agreement could be rescinded on the grounds that the franchisor had offered a turnover forecast which differed too much from the turnover actually achieved by the franchisee.
The pre-contractual information duty also plays a role in international franchise agreements. It has been ruled in case law that the pre-contractual information duty is a legal provision of public policy, which must be applied whenever the franchisee is established in France.
Therefore, a Dutch franchisor who wants to enter into a franchise agreement with a French franchisor may be required to provide the pre-contractual information prescribed by the code de commerce, even if the agreement is subject to Dutch law.
For more information on French franchise law compared to Dutch law, feel free to reach out to me to ask for the PDF version of an article I wrote about it in the Dutch legal journal “Franchise en Recht” in November 2022 (article in Dutch).