The non-compete clause in combination with a rental agreement

Franchise attorney

Almost every franchise agreement nowadays includes a post-contractual non-compete clause. In short, this clause ensures that the franchisee, after termination of the franchise agreement, cannot engage in activities similar to those during the term of the franchise agreement. The purpose of such a non-compete clause is primarily to protect the ‘know-how’ of the franchisor, but in practice such a clause will have the effect that the franchisor does not have to fear a new competitor, usually for one year, in the territory where the franchisee was active. More far-reaching stipulations also occur, but they can be null and void or voidable on the grounds of violation of the Competition Act or because of unreasonable burden.

If, in addition to a franchise agreement, the franchisee has also concluded a – properly linked – (sub)lease agreement with the franchisor, this will in principle also be terminated at the end of the franchise agreement. Since a non-compete clause is usually limited to the location, such a (sub)lease construction will result in a non-compete clause gaining ‘force’. After all, if the (sub)lease agreement is also terminated, the franchisee no longer has any right or title to develop activities at the relevant leased location, let alone compete with the franchisor.

However, it also happens that a franchisee does not rent from his franchisor, but rents directly from a third party (usually: the owner). In the event that the terms of the franchise agreement coincide with the terms of this rental agreement, then in principle there need not be a problem, for example because the franchisee can terminate the lease in time. It is of course a different story if the franchisee is confronted with the termination of the franchise agreement (with a post-contractual non-compete clause), but cannot simply waive the lease. In that case, the franchisee is effectively caught between ‘two fires’, namely the prohibition of the non-compete clause to develop certain activities and the obligations arising from the lease, in particular the exploitation obligation.

Of course, the ex-franchisee can choose at that time to develop other activities, which do not conflict with the non-compete clause, but experience shows that for various reasons it is not easy to start from one day to the next. switch industry. After all, the ex-franchisee has gained his experience in a certain sector, which makes a ‘switch’ difficult in practice. In addition, the inventory in the leased business premises will also have to be adapted to the new sector in which the ex-franchisee wishes to operate, which will entail new costs. These costs can be considerable and are therefore actually not feasible or desirable. Furthermore, it is not uncommon for a so-called destination clause to be included in the rental agreement, which prescribes which business activities are only permitted by the lessor. And in principle these will be precisely those activities with which the ex-franchisee once started, namely the activities as a franchisee. The foregoing elements will not make the step to develop other activities an easy one.
It is important to note that the court does not always take into account the precarious position in which the former franchisee can find itself if there is a post-contractual non-compete clause and a rental agreement concluded directly with a third party. . The preliminary relief judge in The Hague, for example, was confronted a few months ago with a case in which a former franchisee was bound by his franchisor to a post-contractual non-compete clause. However, the former franchisee rented his business space directly from a third party, making it difficult for him to ‘just’ start developing other activities.

The court ruled that the fact that the rental agreement is inconsistent with the existence and continuation of the franchise agreement, while it is clear that there is a post-contractual non-compete clause, can be fully regarded as a business risk on the part of the former franchisee . Freely translated: as an independent entrepreneur, the ex-franchisee should have taken this into account. The former franchisee was therefore obliged by the court to fully comply with the post-contractual non-compete clause, despite the fact that he may have had problems with his obligations under the lease.

In short, a (legally valid) post-contractual non-compete clause should not be ignored too lightly. It is preferable that, before the termination of the franchise agreement is a fact, the possibilities of further exploitation after the term of the franchise agreement are broadly examined. This, of course, to avoid unpleasant or unwanted surprises. In the best case, this inventory is already done when the franchise agreement is entered into, all the more so if the franchisee rents his business space directly from a third party.

Ludwig & Van Dam franchise attorneys, franchise legal advice