Franchise Disclosure Document drafting
The franchisor must provide the franchisee candidate with a pre-contractual information document (the “Franchise Disclosure Document” or “FDD”), meeting the requirements of Articles L. 330-3 and R. 330-1 of the Commercial Code.
When to submit the DIP?
At least 20 days before any of these events:
- The signing of the franchise agreement;
- The payment of any sum of money linked to the franchise agreement (entry fee, initial fee, etc.);
- More generally, any investment related to the franchise agreement (amounts paid to an architect, key money, etc.).
Thus, if the future franchisee first intends to sign a reservation agreement for a territory, in return for which it pays a sum of money, it is necessary to think about giving it a FDD at least 20 days before the signing of the reservation agreement and the sum paid for the reservation.
What should the FDD contain?
The franchisor must provide “truthful” information allowing the franchisee candidate to “make an informed commitment”.
Article R.330-1 of the Commercial Code lists the elements that must be included in the DIP:
- Information on the franchisor: activity, bank address, annual accounts for the last two financial years, directors;
- Information on the network: establishment, information on companies in the network as well as those that have left the network in the year before the FDD was issued;
- Market information: the text refers to a « general and local state of the market and its development prospects”;
- Information on the proposed agreement: duration, conditions of renewal, termination and assignment, scope of exclusivity and envisaged place of operation;
- Information on brand-specific investments.
Must be attached to the FDD, the franchise agreement project draft.
Be careful no to go beyond the requirements of the text… any information provided is binding :
- The texts require the communication of a market report – not a market study. It is settled case law that it is up to the franchisee candidate to carry out his own market study if it wishes to make an informed commitment.
- The text does not require the franchisor to communicate a forecast, and it is preferable that the franchisee candidate carry out his own business plan, with the help of its chartered accountant.
Consequence of non-compliance with Doubin Law :
Failure to comply with Doubin Law may result in the cancellation of the franchise agreement.
However, the franchisee shall prove that a missing – or incorrect – element was decisive for its consent.