21. Sep 15

Franchise: Damages claims by franchisees

Franchisees can assert claims for damages if they were knowingly forecast unrealistic turnover figures when everything was being explained to them prior to the conclusion of the agreement.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London - www.grprainer.com/en conclude: Franchise agreements can today be found in a wide range of different industries. The franchisee runs an independent company and makes use of the franchisors’ trademarks and concept for this purpose. Within this framework, the franchisor generally has a lead over the franchisee in terms of information.

This is due to the fact that the former in most cases has recourse to empirical data from its other franchise partners, which puts it in a position to provide serious figures regarding the expected turnover. While it has not been fully clarified which economic indicators a franchisor needs to make available within the scope of things being explained prior to the conclusion of the agreement, completely unrealistic and exaggerated figures that have no comprehensible basis cannot be used. That was the determination of the Hanseatic Higher Regional Court of Hamburg in its ruling of September 5, 2014 (Az.: 4 U 10/14).

In the instant case, a franchisee of a fashion label raised an action for damages. The turnover figures that it had been forecast were far too high. They were unable to generate this turnover even after two years. It was not even enough to cover the costs associated with the store. For this reason, the franchisee terminated the franchise agreement and sued for reimbursement of the costs incurred. The HRC of Hamburg awarded the plaintiff extensive compensation. At first instance, the Regional Court of Hamburg had also awarded the plaintiff compensation.

The case demonstrates that a franchise agreement is a complex matter both for the franchisor and the franchisee, with respect to which many different factors need to be taken into account. Additionally, a large variety of other legal fields typically come into play as well. Experienced lawyers with a high degree of expertise in the various legal fields concerned can contribute to the drafting of the agreement to ensure that it is legally sound and duly accounts for the interests of all of those involved.

Even if disputes arise concerning existing franchise agreements, it is still important to seek legal advice.

For more informations: http://www.grprainer.com/en/legal-advice/commercial-law/franchise-law.html

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