The practical reality
You have signed a franchise agreement. The figures looked promising, the forecast was convincing, and on that basis you made an investment — possibly even with borrowed funds.
Then reality sets in: turnover falls short. Not slightly, but structurally.
At that point, the inevitable question arises:
“Could I have seen this coming, and were the figures actually reliable?”
This situation is far from exceptional.
In practice, forecasts regularly turn out to be overly optimistic, historical figures may present a distorted picture, or key assumptions prove to be flawed.
For franchisees, a great deal is at stake. But franchisors also face a real risk: when does information provided turn into legal liability?
The core question therefore is not only what happened, but above all:
Are you, as a franchisee, left empty-handed?
The legal issue
By law, the franchisor is required to provide extensive information before the contract is signed — including financial data relating to the intended location. What the law does not require is a turnover forecast. Nevertheless, forecasts are frequently provided in practice, and this is often where the legal issues begin.
A forecast that does not materialise is not, in itself, grounds to challenge the contract — after all, it remains a prediction. However, the situation is different if the historical data underlying the forecast is incorrect. In that case, the contract may be voidable and the franchise fee paid may have to be refunded.
What the franchisee cannot claim, however, is the profit that would have been made had the franchisor’s forecast actually materialised.
What may be claimed in addition are costs that would not have been incurred without the contract, such as financing or loan costs. A distinction that is crucial for both parties applies here:
- If the forecast was prepared by an external consultancy, a high threshold applies: it must be proven that the franchisor knew the report contained errors.
- If the forecast was prepared by the franchisor itself or by one of its employees, it is sufficient to demonstrate negligence. In that case, whether the franchisor was aware of the errors is generally irrelevant.
What does this mean for entrepreneurs?
Returning to the earlier question: neither party is automatically left empty-handed. The law offers two possible avenues:
- First, annulment of the contract and recovery of the franchise fee.
- Second, compensation for costs that would not have been incurred without the contract.
The strength of this position depends on who prepared the forecast — and therefore on what must be proven.
For the franchisee, this distinction determines the burden of proof. For the franchisor, it determines the extent of potential liability and highlights the importance of carefully structuring the preparation of forecasts.
What is never recoverable is the profit that would have been earned had the forecast been accurate.
Legal focus — practical tips for entrepreneurs
For franchisees with questions about turnover forecasts
- Document all communications in which the franchisor makes statements about expected turnover.
- If results fall short, investigate whether this can be traced back to incorrect assumptions or flawed premises in the forecast, rather than to subsequent market developments.
- Critically assess the historical data used and seek legal advice in good time. As time passes, your evidentiary position may weaken.
For franchisors
- If you provide a turnover forecast yourself, ensure that the underlying historical data is demonstrably accurate, complete and verifiable.
- Carefully document how the forecast was prepared, which assumptions were used and which sources were relied upon.
- Consider having the forecast prepared by an independent consultancy. This not only provides substantive safeguards but may also limit your liability exposure.
Questions for entrepreneurs
For franchisees
- Are the disappointing results genuinely the result of incorrect assumptions in the forecast?
- Is all relevant communication, substantiation and documentation still fully available?
- Has the strength of your legal position already been assessed?
For franchisors
- Can you demonstrate that the historical data provided was accurate and complete?
- Is it clearly documented how the forecast was constructed and which sources were used?
- Has sufficient consideration been given to risk mitigation, for example by engaging an independent consultancy?
In both cases, a timely assessment of the legal position can make a significant difference.
Feel free to contact us — we are happy to think along with you about a practical and legally sound approach.
