Article De Nationale Franchise Gids: “Reinvestment obligation for franchisees has limits” – dated October 13, 2020 – mr. RCWL Albers
In practice, it often happens that franchisors choose to renew their franchise formula and the appropriate image. Remodeling, formula updates and reinvestments are a must for the further development of the formula. In the context of uniformity, it is also desirable that all franchisees conform to this. However, to what extent can a franchisor oblige? And what will change after the introduction of the Franchise Act?
Agreements too vague
Law or no law, the most important starting point in this remains the formulation of any agreements that the franchisor invokes. Without a clearly framed and unambiguous agreement (in the franchise agreement), there is a good chance that a franchisor is already blunt when it requests a franchisee to incur costs to (re-)invest. Particularly if this entails considerable costs, a formula that is too general is too vague to be enforceable.
No default franchisee
In a recent ruling by the judge in preliminary relief proceedings in Amsterdam, Blokker therefore ran into the lamp. The preliminary relief judge ruled that a Blokker franchisee is not obliged to renovate the store in accordance with the latest formula principles, as instructed by Blokker. Blokker had developed a new house style called “Alles in Huis” and stated that the franchisee is obliged to make the associated adjustments and investments. The judge ruled otherwise.
Because the franchisee refused, Blokker had terminated the franchise agreement, but the court ruled that Blokker was not entitled to do so. There was no breach of contract by the franchisee. According to the court, it was insufficient that the franchise agreement contained provisions that, in short, amount to the franchisee having to follow Blokker’s instructions and keeping his shop up-to-date.
A salient detail here is that the court refers to the Franchise Act, which is not yet applicable, in which the necessary provisions are made regarding the information to be provided by franchisors and the way in which the parties should treat each other.
The Franchise Act sets further limits
With the introduction of the Franchise Act, further restrictions are imposed on this. Pursuant to the Franchise Act, a franchisor must already obtain permission from the relevant franchisee (or the majority of all franchisees) when changing the formula if that change leads to an investment of, so to speak, a few euros.
Permission is only not required if the franchisor and the franchisee have jointly agreed that permission need not be requested below a certain amount (threshold value). These threshold values may not be set unrealistically high, as is apparent from the Explanatory Memorandum to the Franchise Act. This is contrary to good franchising.
The relevant obligation under the Franchise Act applies directly to franchise agreements concluded after 1 January 2021. Existing franchise agreements must comply with this no later than 1 January 2023.
Conclusion
Franchisors are therefore well advised to make clear agreements with their franchisees in good time to prevent the uniformity of the formula from being compromised, because franchisees cannot simply be obliged to cooperate in a refresher. Particularly if the current provisions in this regard are unclear, diligence is required.
mr. RCWL Albers – Franchise Attorney
Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to albers@ludwigvandam.nl
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