Continuation of the franchise agreement at the then current
Mr Th.R. Ludwig – Franchise attorney
Franchise agreements often contain clauses that make the continuation of the franchise relationship dependent on the agreement to be reached between franchisor and franchisee in the future on the basis of “the then applicable franchise agreement”.
In practice, this means that the franchisee may be confronted with a new franchise agreement at the time the contract is awarded.
In itself, such a clause is understandable and often justified. After all, over the years, insights into the various arrangements in the existing franchise agreement evolve. Some clauses lose their importance, while new regulations are indicated. This could include, for example, adequate regulations regarding the possibilities of (communal) use of the Internet for the benefit of the franchisee, franchisor and franchise organization as a whole. In addition, the regulations change over the years. For example, in the area of competition law, a lot has changed in recent years, which may require the parties to adapt the franchise agreement on this point to the requirements of the time.
However, this justified course of action does not mean that everything the franchisor wants can be included in the new franchise agreement. This depends in the first place on the wording of any option in the existing agreement. If this option means that both the franchisor and the franchisee are ultimately not obliged to deal with the other if no agreement is reached, then the franchisor has ample opportunity to offer a substantially modified franchise agreement. In other words: the franchisor can then demand new, additional conditions.
However, when an option is granted, meaning that the franchisee is entitled to a new franchise agreement without further qualification, with the only restriction that it must be entered into on “the then current terms”, this leaves much less room for maneuver for the franchisor in question. In concrete terms, in such a situation, the franchise organization cannot, for example, simply increase the fee owed considerably or demand a complete restyling without right and reason. After all, in this way very strict additional conditions are imposed on the in principle unqualified option. It has recently been ruled in court that in such a situation the franchisor has no option to oblige the franchisee to concrete far-reaching financial aggravations at the time of contract renewal, as outlined above. This does not mean that in this situation the franchisor cannot submit well-substantiated new terms that also entail financial obligations. For example, well-founded arrangements with regard to permanent maintenance and furnishing of the branch, if this keeps the franchise formula and individual franchise branches up to standard, and guarantees necessary (concept) innovations.
Good consultation with the franchise council is an important key to this. The franchisor who wants to offer a new franchise agreement to the franchisees is therefore advised to first reach consensus on this in the franchise council. This creates a support base that best safeguards the common interests of the franchisor and franchisees.
Ludwig & Van Dam franchise attorneys, franchise legal advice
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