How independent is the franchisee actually still?

Linking the rental agreement to the franchise agreement

It is hardly visible that mergers of franchise organizations often take place via the acquisition of real estate and/or rental rights. In this context, the binding of those locations to the formulas, versus independence, is a topical theme. In addition to non-competition clauses, purchase options and offer obligations in the franchise agreement, this binding is also realized through tenancy law.

However, the franchisee sees the independent rent protection as a guarantee to arrive at a realistic sales proceeds at the end of the cooperation. The law also stipulates that if the parties were to contract away rent protection, the tenant can invoke the voidability of this, now that this is contrary to the law. The starting point is that when entering into the rental agreement and franchise agreement, the tenant is often not in a position not to accept such provisions and therefore requires legal protection.
Only the subdistrict court can grant permission to approve deviating provisions from the law, which can then no longer be annulled. The subdistrict court must ascertain whether this is not to the detriment of the tenant and whether the tenant has such a social position that he does not need this protection.

The difference between an approved and an unapproved link will become clear on the basis of two examples from practice.

After a “real estate” merger, the franchisee did not come to an agreement with the organization. The franchise agreement was canceled by the organization. The organization unsuccessfully requested termination of the lease in summary proceedings. The entrepreneur has now established its own formula at that location and the lease with the former franchisor continues. Now that the organization itself had terminated the franchise agreement, the non-competition clause was also of no benefit to it. This was overruled by the court at the request of the franchisee. The case is still running.

Recently, however, the Court ruled in another case that a franchisee would not need such security of tenure and approved that the lease automatically terminates upon termination of the franchise agreement. This means that the tenancy protection will expire.

Opinions could differ on the motivation of the Court.

After all, the starting point is that the deviation from the law may not be detrimental to the tenant’s position and, moreover, this should only be possible if the tenant, in view of his social position, does not need rent protection.

The Court comes to the approval by first of all considering whether the legal validity of the franchise agreement can be submitted to the court for review by the franchisee. However, it can be argued that in most cases termination of the franchise agreement is possible without further ado.

The Court also takes into account that the franchisee may even benefit from the link due to the non-competition clause. It can be argued against this that the non-competition clause may turn out to be invalid and/or could be declared inapplicable and/or suspended. Moreover, an unapproved link is only destructible, which destructibility the lessee does not have to invoke.

The Court’s consideration that the franchisee, despite his lesser social position in relation to the franchisor, does not need legal protection, is also hardly motivated and cannot be properly understood in the context of the increasingly dependent legal and financial position.

A critical view of coupling therefore remains desirable.

Ludwig & Van Dam franchise attorneys, franchise legal advice