Pre-contractual information to disclose to Franchisees in France
Updated: Feb 12
According to article L. 330-3 of the French Commercial Code any person who makes available to another person a trade name, a trademark or a sign, by requiring a commitment of exclusivity or quasi-exclusivity for the performance of such person’s business, must, prior to the signature of any contract, provide the other party with a document giving sincere information, which allows it to make an informed decision about whether to contract or not.
Failure to provide such information is punishable by a fine, and may result in the cancellation of the franchise contract.
1. The scope of the pre-contractual information which a Franchisor must disclose to its prospective Franchisees in France
This pre-contractual disclosure document, must indicate, inter alia:
- the seniority and experience of the franchisor company,
- the state of the relevant market and the prospects for its development,
- the importance of the network of franchisees,
- the duration, the conditions of renewal, termination and assignment of the contract, as well as
- the scope of the exclusivities required or granted by the franchisor.
According to article R. 330-1 of the French Commercial Code, the pre-contractual disclosure document must also contain the following information:
- the ID number of the company in the country of location of its headquarters
- followed by the name of the city in which it is registered
- the exact corporate name of the franchisor company
- the address of the franchisor’s headquarters
- the nature of the franchisor’s activities
- the legal form of the franchisor (such as, “Ltd”, “LLC”, other)
- the amount of the share capital of the franchisor
- the identity of the business manager and the directors of the franchisor
- the date and registration number or the filing number of the trademarks licensed by the franchisor, and, in the event that the trademarks which are the subject matter of the contract were acquired as a result of a trademark assignment or made available as result of a license, the date and the number of registration of such assignment or license in the National Register of Trademarks including the duration of the license agreement
- the bank domiciliations of the franchisor (this information may be limited to the five main domiciliations)
- the date of the creation of the undertaking, with an indication of its main stages of its evolution, including that of the network of franchisees, where appropriate, as well as any indications allowing to assess the professional experience acquired by the franchisor and by its directors.
The information referred to in the preceding paragraph may cover only the last five years preceding that during which the pre-contractual information is disclosed.
In addition, the franchisor must provide the franchisee with a presentation of the general and local state of the market of the products or services of the franchise contract, and the prospects for development of this market.
The franchisor must also provide the franchisee with the franchisor’s financial accounts for the last two years or, if the franchisor is a listed company, with the public reports prepared in connection with such listing.
The franchisor must also disclose to the franchisee its network of franchisees, such disclosure to include a list of the franchisees which form part of its network, the address of those which are based in France, the date of conclusion and renewal of the franchise agreements with such franchisees. If the franchise network has more than 50 franchisees, such information is required only in respect of those 50 franchisees which are closest to the envisaged place of business of the prospective franchisee.
The franchisor must also disclose to the franchisee the number of franchisees which ceased to be part of the franchise network during the year preceding that of the issuance of the pre-contractual information disclosure document. The document specifies whether the contracts have expired or have been terminated or cancelled.
The franchisor must also disclose to the franchisee the presence, if any, within the area envisaged to be granted to the franchisee for its franchise, of any undertaking which already offers the goods or services envisaged by the franchise contract.
Finally, an indication of the duration of the proposed contract, the conditions of renewal, termination and assignment, and the scope of exclusivities must be expressly specified.
The disclosure document must also specify the nature and amount of the expenses and investments specific to the brand or trademark to which the prospective franchisee is required to commit.
Additionally, where the payment of an amount is required prior to the signature of the franchise contract, in particular in order to obtain the reservation of an area, the benefits ensured in return for that sum must be specified in writing, as well as the reciprocal obligations of the parties in the event of cancellation.
2. The pre-contractual disclosure information obligation provided for by French law applies regardless of whether the Franchise contract is subject to a different law
Many franchise agreements contain jurisdiction clause which provides for the application of foreign law and a foreign forum. Although such clause is valid in international agreements, it does not relieve the foreign franchisor from its obligation to comply with French law regarding the pre-contractual information which must be disclosed to the prospective franchisee.
According to a decision of the Court of Appeal of Paris dated 25 October 2011, the provisions of French law on pre-contractual disclosure constitute mandatory provisions of French international public order, which must apply to a contract entered into by a foreign franchisor with a French company aimed at the creation and development in France of a franchise network.
3. When and how to disclose the pre-contractual information to a Franchisee?
The pre-contractual disclosure document containing the above information and a copy of the proposed franchise agreement must be communicated by the franchisor to the prospective franchisee at least twenty days before the signature of the franchise agreement and before any payment is made by the franchisee to the franchisor.
The franchisor must secure a proof not only of the date on which the information was communicated, but also of the contents of such information.
4. Failure to disclose the required pre-contractual information may result in a penalty imposed on the franchisor or constitute grounds for cancellation of the franchise contract by the franchisee
According to article R.330-2 of the French Commercial Code, is punishable by a fine of €1 500 and, in the event of repeated offence, €3 000, the fact of making available to a person a trade name, a trademark or a sign by requiring a commitment of exclusivity or quasi-exclusivity for the exercise of such person’s activity without having communicated to such person, at least twenty days before the signature of the contract, the pre-disclosure information document and the draft of the franchise contract referred to in article L.330-3 of the French Commercial Code.
Also, failure to provide the pre-contractual disclosure information required by French law may constitute grounds for the cancellation of the franchise contract in court at the request of the franchisee. Indeed, if the consent of the franchisee to contract has been vitiated due to the lack or insufficiency of the information, the latter can obtain the cancellation of the contract and an indemnification from the franchisor for losses suffered.
According to French case law, the pre-contractual disclosure information which a franchisor is required to provide must be serious, complete and sincere, enabling the prospective franchisee to assess the opportunity to contract, mainly as regards the prospect of realizing a financial gain.