If the rental agreement is terminated by the lessor/franchisor, there may be compensation to be paid to the lessee/franchisee by the lessor/franchisor

Lease agreements relating to medium-sized business premises are frequently terminated using the ground for termination of urgent personal use. In many cases, the lessor/franchisor then wants to use the leased property for a similar company. In the lease termination proceedings, it is sometimes argued by the tenant/franchisee that the landlord/franchisor must pay compensation in connection with the goodwill that the tenant/franchisee will leave behind on the premises upon termination of the lease. According to Section 7:308 of the Dutch Civil Code, the landlord/franchisor of medium-sized business space must pay compensation to the former tenant/franchisee whose lease he has terminated, if the landlord/franchisor benefits from the fact that the leased property is subsequently used for a similar company. is used.

Only the lessee/franchisee whose rental agreement has ended after termination by the lessor/franchisor can claim compensation. It is irrelevant whether or not the lessee/franchisee has defended itself against the termination by the lessor/franchisor. In the event of termination by the lessee/franchisee, termination by mutual consent or dissolution, no compensation can be claimed. The legislator assumes that when the lessee/franchisee terminates the agreement, he will have reached agreement with the lessor/franchisor about the compensation.

In theory, it does not matter on the basis of which the lease was terminated. However, in practice there will not easily be grounds for compensation if the rental agreement ends due to the poor management of the lessee/franchisee.

Section 7:308 of the Dutch Civil Code does not apply to a rental agreement that has been entered into for two years or less and that ends when the agreed term expires. In practice, it often happens that a landlord/franchisor enjoys a benefit at the end of the lease because a thriving business has been established in the building. He will be able to lease the property on favorable terms to a tenant/franchisee who wants to set up a similar business there. He can then also start a similar business in the building himself and thereby benefit from a clientele of the old tenant/franchisee. From the new tenant/franchisor who can enjoy this in the same way, he will also often be able to stipulate a higher rent or sometimes even a lump sum. To that extent, he makes use of the goodwill built up by a previous user.

If the lessor/franchisor waits more than a year after the termination of the lease before the business space is put into use for a similar company, the former lessee/franchisee can no longer claim compensation in accordance with Section 7:308(3) of the Dutch Civil Code. This term is based on the idea that it can no longer be said that the new entrepreneur still benefits from the activity of his predecessor, when an interruption of a considerable duration has taken place.

The compensation to be paid by the lessor/franchisor is not compensation for the damage suffered by the renter/franchisee, but a compensation for the advantage enjoyed by the lessor/franchisor that has fallen into his lap. This means that the compensation is limited to what the lessor/franchisor has actually received. The benefit of the lessee/franchisee may arise when the lessor/franchisee himself uses the leased property for a similar business, but also when he can rent the leased property under favorable conditions, because the new tenant/franchisee will benefit from the fact that the leased property will be used for the performance of a similar business or if the lessor/franchisor can sell it for a higher price.

In the proceedings, the former lessee/franchisee will have to state and prove that the entrepreneurial activities of the lessor/franchisor are similar to those of his entrepreneurial activities. This proof is not easy to provide. Because many leases are linked to the franchise agreements. In such relationships it will be even more difficult to substantiate a claim on the basis of Article 7:308 of the Dutch Civil Code because it is obvious that any advantage of the lessor/franchisor in conducting a comparable business must be allocated to its franchise formula. and not to the entrepreneurial activities of the former lessee/franchisee.

Ludwig & Van Dam franchise attorneys, franchise legal advice