Strict application of standstill period

In a judgment of the District Court of The Hague on November 8, 2023, ECLI:NL:RBDHA:2023:16665, it was ruled on the standstill period of Article 7:913 of the Dutch Civil Code. It was concluded that the statutory standstill period had been violated and the franchise agreement had been validly annulled.

On March 6, 2020, a prospective franchisee and a franchisor had signed a letter of intent and a draft franchise agreement had also been provided. With the letter of intent, the parties aimed to reach a franchise agreement.

Following the letter of intent, the franchisee paid an amount of € 1,500 to the franchisor in March 2020, which, on the basis of the letter of intent, will be deducted from the entrance fee due under the franchise agreement when concluding a franchise agreement.

A year later, on March 6, 2021, the intended franchisee received a new draft franchise agreement by email. The parties concluded a franchise agreement according to the latter concept on March 10, 2021.

The franchisee claims that he only received the final version of the franchise agreement on March 6, 2021, within the standstill period. Article 7:914 of the Dutch Civil Code stipulates that the necessary information must have been shared in the period of at least 4 weeks before the conclusion of the franchise agreement, including a draft of the franchise agreement to be signed. The franchisor has not disputed this as such. She does state that the franchisee already sent a draft version of the franchise agreement on March 6, 2020, i.e. a year earlier. According to the franchisor, the two versions contain major similarities and the latest version contains some adjustments/additions that would be to the advantage of the franchisee in various respects. According to the franchisor, more than 4 weeks were observed.

The franchisee relies on various differences between the two versions. This includes, among other things, the following:
– a provision has been added stating that the franchisee may only work with companies designated/approved by the franchisor with regard to its marketing activities, and;
– a fine of €30,000, €5,000 and €3,000 respectively has been imposed for violation of various provisions.

The court considers that the regulation of the standstill period in Article 7:913 of the Dutch Civil Code means that there must be at least four weeks between the moment the latest version of the franchise agreement is provided and the moment the franchise agreement is entered into (unless the changes are to the benefit of the franchisee). In the court’s opinion, honoring the franchisor’s appeal would be inconsistent with the protective idea behind the standstill period. Honoring that appeal would mean that the franchisor can propose a new version of the agreement – less favorable for the franchisee – more or less without risk in violation of the standstill period immediately before entering into the agreement. If the franchisee then invokes a violation of the standstill period, the franchisor can safely fall back on the previous concept, while if the franchisee does not invoke this – for example due to ignorance – the franchisor has put itself in a better position.

The court concludes that the franchise agreement concluded has been legally annulled by the franchisee. The annulment of the franchise agreement means that the parties, insofar as they have implemented the franchise agreement, have done so without obligation. The court decides that the parties must comment further on this.

This statement shows the importance of observing the standstill period of at least 4 weeks. The court applies the scheme strictly.