Can I hold my franchisor liable for providing incorrect sales and profit forecasts?

Before concluding a franchise agreement, the franchisor often provides the (potential) franchisee with a sales and profit forecast. When the expectations turn out to be unrealistic and the franchisee had never concluded the franchise agreement had the information been represented correctly, the franchisee is likely to recover the damage suffered from the franchisor.

The damage can be recovered from the franchisor successfully if the franchisor himself has conducted the research regarding the sales and profit forecast or if it was conducted on his behalf by a person he is liable for (for instance, an employee). This can be the case even if he didn’t know that the information was incorrect but the mistakes in the report are due to negligence of the franchisor or the person he is liable for.

When the franchisor contracted a third party for researching and reporting of the forecast, the franchisor may rely on the accuracy of the information provided by the third party. Then, he will in principle not be liable for the damage.

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Related questions

  • Is the agent entitled to goodwill indemnity in the event of termination of the agency agreement?

    In a termination of an agency agreement, the agent is in principle entitled to clientele compensation (also referred to as goodwill indemnity). This concerns compensation in the event the activities of the agent during the term of the agreement have led to an expansion of the customer base of the principal and the principal is likely to benefit from this expansion after the termination of the agreement.

    However, the principal doesn’t owe the agent goodwill indemnity if:

    • No new transactions can be expected from the clients acquired by the agent
    • The agent himself terminates the agreement
    • The agent transfers the agreement to a third party