Extension under “the then applicable conditions”
Many franchise agreements contain a franchise renewal clause that allows the franchisee to re-exercise the franchise for another five years, provided that the franchise agreement is accepted “on the terms then in force”.
Does this somewhat cryptic formulation constitute a license for a franchisor to unilaterally change the conditions, i.e. the content of the new franchise agreement, when the contract extension is up for discussion? By no means. It has been established in case law that a franchisor is certainly not free to freely change the conditions in the new franchise agreement in accordance with its own insight and policy in the event of a contract renewal. For example, if a higher fee is suddenly requested, this means that the option granted can in practice only be invoked under such additional conditions that this is more than the franchisee could expect. The conduct of the franchisor in question described here may then be unlawful.
Does this mean that a franchisor cannot change his franchise agreement at all in the event of a contract renewal if the above option is included in the franchise agreement? Not that either. The franchisor can indeed change and add to various subjects in the franchise agreement. However, it is important to reach consensus in advance with the existing franchisees, for example in consultation with the franchise council. In this way, surprises in the event of a contract extension for existing franchisees are eliminated in advance and a clear situation is created long before any contract extension that benefits everyone.
Ludwig & Van Dam franchise attorneys, franchise legal advice
Other messages
No obligation to use a rental property as a supermarket
The Arnhem-Leeuwarden Court of Appeal has made a decision on ...
Rent indexation unrealistically high
Does an agreed rent indexation always apply? The District Court ...
Clarity pays off
Clarity pays off Many agreements sometimes use vague definitions ...
Continued activities of the franchisee do not violate a non-competition clause
A judgment was recently rendered in preliminary relief proceedings in ...
Car dealer wrongly not a franchisee?
The Franchise Act entered into force on 1 January ...
Suspension of payouts allowed by the franchisor
The District Court of Limburg ruled on 30 March 2023, ...