Buying a franchise: meet your duty to investigate

A comprehensive information pack does not necessarily mean a franchise is right for you. Anyone joining a franchise network must also assess the information they receive and investigate anything unclear. This is not just sensible: Dutch franchise law requires prospective franchisees to take an active approach. A structured due diligence file makes clear what you know, what remains uncertain and why you ultimately decide whether or not to sign.

1. Understand what the law expects of you

The Dutch Franchise Act has been in force since 1 January 2021 and is incorporated into Book 7, Title 16 of the Dutch Civil Code, Articles 7:911 to 7:922. It sets out both the franchisor’s disclosure obligations and the prospective franchisee’s duty to investigate.

Article 7:915 of the Dutch Civil Code requires you, within the bounds of reasonableness and fairness, to take the necessary steps to avoid entering into a franchise agreement on the basis of incorrect assumptions. In practical terms, this means not just receiving documents, but reading them, discussing inconsistencies and bringing in specialists where necessary.

Your duty to investigate does not remove the franchisor’s disclosure obligations. Among other things, the franchisor must provide the draft agreement and its schedules, information about financial obligations and relevant financial data. You do not therefore have to silently accept missing information at your own risk.

How far your investigation needs to go depends on the circumstances. Your experience, the complexity of the arrangements and specific warning signs may all play a part. The law does not prescribe a universal checklist that automatically gives every buyer sufficient protection.

So distinguish between two questions: has the franchisor provided what it is required to provide, and have you investigated sufficiently to make a sound decision of your own?

2. Turn separate documents into a traceable file

Start with a single document register. For each file, record the sender, date received, version and subject. Keep earlier versions so that changes do not go unnoticed when someone sends a new agreement or an amended schedule.

Then add a list of questions with four columns:

• Subject: which provision or assumption are you investigating?
• Supporting evidence: which document or data supports it?
• Outstanding question: what is unclear, missing or inconsistent with something else?
• Follow-up: who will answer, and is their answer adequately supported?

Ask specific questions. ‘Are all the costs clear?’ is too general. A better question is: ‘The agreement includes a compulsory system fee, but this is missing from the cost breakdown. How much is payable, and when must I pay it?’

Keep facts and expectations separate. An obligation already included in a draft agreement is different from an expectation of future growth. For expectations, record the underlying assumptions and who prepared them.

Your file does not need to be extensive. Above all, it should show which information supports your decision. A folder containing hundreds of unread files does not achieve that.

3. Focus on discrepancies and gaps

The greatest value lies not in collecting yet another brochure, but in comparing documents. Review the agreement, schedules, cost breakdown and financial explanations side by side. Are the terms, periods and amounts consistent?

Suppose, for example, that a technical schedule mentions a compulsory software migration, while the financial explanation assumes the existing systems will remain in use. The relevant question is not just how much the software costs. You also need to know when the migration will take place, what work is required and how it will affect your opening.

Where data is missing, ask why and what alternative information is available. ‘Not available’ may be an understandable answer, but it does not reduce the associated risk. Record the uncertainty that remains and whether you can run your business with it.

Seek targeted advice on complex issues. For example, ask an accountant a specific question about how different financial statements reconcile. Ask a franchise lawyer about the potential consequences of an unclear obligation. A clearly defined brief generally produces more useful advice than simply asking whether everything looks all right.

Independent investigation remains important even within a supportive franchise network. Enthusiasm and mutual trust are no substitute for checking.

4. Finish with a reasoned decision

Before signing, prepare a short decision note. Divide your findings into three categories: sufficiently clarified, consciously accepted risk and unresolved issue. For each significant risk, explain what it could mean for your business.

An outstanding issue does not always mean you have to walk away. Sometimes additional information or a clear contractual provision can resolve it. But do not let time pressure become a reason to mark a fundamental uncertainty as settled.

Keep your file after you start trading, too. If a dispute arises later, the information provided, your questions and the answers may be relevant. However, a carefully maintained file does not guarantee a successful legal claim; all the circumstances will matter.

Practical conclusion: do not sign simply because the information pack looks complete. Sign only once you have checked the key assumptions, had significant questions answered and can clearly explain which risks you are knowingly accepting.