The pre-contractual duty

Inform yourself and learn everything you need to know about the pre-contractual duty of utmost good faith within the franchise business.For a contract, it is essential that all contract partners are fully aware of the opportunities and risks arising from the contractual relationship. Perhaps you are wondering how the pre-contractual clarification is regulated within the franchise business? In Germany, there is no statutory regulation governing an obligation to pre-contractual clarifications. The rights and obligations of the Contracting Parties therefore arise from the principle of good faith. It can be said that a so-called "pre-contractual trust relationship" arises as soon as the contact between the franchisee and the franchisor extends to the conclusion of the franchise agreement. This relationship of trust obliges the parties to the contract to exercise due diligence as well as to pre-contractual clarification obligations. The franchisor is in a debt obligation, which requires that he informs the franchisee without being asked, about all essential aspects of the franchise system. 

What information is implied in the pre-contractual clarification obligation?

There are certain details that the franchisor must disclose in the context of the pre-contractual clarification obligation. The results and experiences of existing franchise companies as well as the services of the central system must be presented. In addition, they must disclose the investment sums and the necessary working load of the franchisee. Information on the franchisor's operation and a realistic profitability prospect based on correct and comprehensible data are also included in the information to be provided in the context of the pre-contractual obligation for information to be supplied. 

The DFV Guidelines of Pre-contractual Clarification

Both parties are advised to comply with the guidelines of the DFV. They should be aware of the fact that a pre-contractual trust relationship already arises during the initial phase of the contract. This means that the two parties are mutually obliged to disclose the information relevant for the future cooperation.A DFV guideline states that the franchisor is required to disclose and explain the prospects for success and to provide true information about the prospective employer and capital contribution of the franchisee. The franchisor must also provide a basis for calculation based on the experience gained so far from franchise operations. These data are intended to provide the franchisee with a comprehensive basis for assessing the necessary expenses, initial losses and profit opportunities.The Franchisor must also provide the franchise manual for the franchisee prior to the signing of binding agreements. The manual contains documentation on the entire know-how of the franchisor, which serves as a basis for the successful implementation of the respective business concept.The franchisee must be granted at least 10 days to review the franchise agreement and other documents. Of course, it is also important that all the details in the contract and the manual are true, clear and complete.Finally, the franchisee is obligated to inform the franchisor in detail and truth about his education and training, his professional career, his qualifications and existing equity.

The information requirements of the franchisee

The franchisee is obligated to inform the franchisor of his personal requirements. This is particularly important as soon as the contract becomes dependent on the personal requirements of the franchisee. Particularly the economic situation of the franchisee, his acquired qualifications and his professional career are included in this information. Also, information about personal obligations or restrictions are often of great relevance.It is advisable for both contracting parties to sign a joint declaration which documents that the pre-contractual information has been provided by the franchisee and the franchisor within a reasonable framework.