ROZ model contracts (rental) adjusted: what are the consequences for Franchise relationships?

On April 10, 2024, the Real Estate Council (ROZ) announced that after discussions with the Netherlands Authority for Consumers & Markets (ACM), it has adjusted the model contracts for the rental and rental of office and retail spaces [1] . What has changed, why is this important for franchising and what are the consequences for current rental agreements?

What has changed?

Since the 1980s, the future rental price adjustment was linked to the consumer price index (CPI) and this agreement was stated as a fixed text in the General Provisions associated with the ROZ models (the general terms and conditions). As a result, rental prices were automatically linked to inflation during the term of the contract. This recently led to significant price increases, but has also led to very low percentages in the past.

After the discussions with the ACM, the ROZ implemented changes, thereby taking the sting out of any further discussion. As a result, the text regarding future rental adjustments in the new models has been moved to the contract itself, where a selection menu is presented (see Article 4.5.1 et seq. of the retail space and office space models as adopted in April 2024). The idea behind this is that the parties will negotiate the rental price adjustment and the percentage. In the new (adjusted) models you can choose from a fixed percentage, a monthly price index figure of your choice (CPI, DPI, etc.) or an adjustment in a ‘manner to be agreed by the parties’. Parties can of course also waive an annual rent increase.

Why is this important for franchising?

In franchise relationships, the franchisor often makes commercial space available, so that the franchisor retains control over the locations. This is often done via a separate (sub)lease agreement. Changes in rental law are therefore often important in franchise relationships. In addition, franchisees often rent directly from a landlord, other than the franchisor.

Does this state of affairs have consequences for current rental agreements in franchise relationships?

At first glance, this course of events does not appear to have any consequences for current rental agreements in franchise relationships, although practice will have to show this further.

The ACM has only ‘addressed’ the ROZ as a trade organization and the changes implemented are not based on a formal decision. Furthermore, the restriction of competition concerns the relationship between the ROZ and the nine professional real estate parties that it serves as a platform. However, the ACM is certain: ‘A trade organization or business association may not advise its members about prices, such as an automatic adjustment of the rent. After all, this kind of advice limits competition.‘ The ACM states the following with regard to the rental agreements: ‘Individual tenants and landlords may make agreements about rental price adjustments in negotiations. Agreements made in advance about this offer both the tenant and the landlord certainty and can benefit the business operations of both parties.‘ [2]

In line with this, I would like to note that the latest developments in case law show that it depends on the specific circumstances how abnormal rent increases are assessed. For example, the court in The Hague [3] recently opined that an indexation of the rent by 14.5% falls below the normal business risk of the tenant (franchisee), whereby the judge even considered: ‘ It is a fact of general knowledge that supermarkets pass on part of the cost increases charged to them to the consumer. ‘

This course of events therefore appears to have no direct consequences for existing rental agreements that are based on the old models. In principle, individual contracts do not restrict competition, so it cannot simply be stated that in these cases there is an invalid provision. Furthermore, it can be stated that the rental agreements in franchise relationships are concluded between professional parties and any adverse consequences fall under the normal entrepreneurial risk of the tenant/franchisee.

When negotiating an extension of the (sub)lease, the new models can now be aligned with, so that a future rental price adjustment can be negotiated. This will also be the case even more quickly for the mutual (sub)lease agreement between franchisor and franchisee, where the special duty of care of the franchisor (Article 7:912 of the Dutch Civil Code) plays a role.

If you have any doubts about the contents of your rental agreement or if you need to extend or conclude a rental agreement at short notice, consider what an appropriate agreement is in your case with regard to a rent increase and seek proper advice in advance.

[1] https://roz.nl/nieuws/2024/04/10/roz-geven-models-meer-alternatieven-voor-huurprijskleding-in-de-modelcontracts-voor-kantoorruimte-en-winkelruimte/

[2] https://www.acm.nl/nl/publicaties/vastgoedplatform-roz-schrapt-automatische-inflievlucht-uit-modelcontracts

[3] District Court of The Hague June 29, 2023, ECLI:NL:RBDHA:2023:10394