Transfer Arrangements in Master Franchise Agreements
Master franchise agreements are generally long-term: 20 or 25 years is no exception. Various subjects are regulated in a Master Franchise Agreement, such as the possibilities and restrictions under which the rights granted may be exploited as franchise rights, a target with regard to the branches to be opened and often (unilateral) conditions under which the Master Franchise Agreement may be terminated prematurely by the master franchisor. When the latter occurs, it is striking that most master franchise agreements usually do not include proper transfer arrangements with regard to the acquired rights.
As a result, master franchisor, master franchisee and the franchisees may be faced with abrupt and highly undesirable consequences. After all, if the master franchise agreement suddenly ends prematurely, the master franchisee’s authority to exploit the franchise rights (or have them exploited) will lapse. In other words, the franchise agreements concluded with the various franchisees are operated without right or title. It would seem obvious that a master franchise agreement would then contain an arrangement that the franchise rights are at least transferred to the master franchisor. However, most master franchise agreements do not contain such an arrangement at all. It is also important that, despite the premature termination of the master franchise agreement, the accrued franchise rights now represent a certain, often considerable value. If, in the event of premature termination, transfer would take place to, for example, the master franchiser, it is plausible to also include in the master franchise agreement that the corresponding value would accrue to the master franchisee. This is without prejudice, depending on the nature of the early termination of the master franchise agreement, to the possibility for the parties to claim damages from both sides and possibly offset this with the intended value. Such an arrangement is also generally absent in regular termination master franchise agreements. If the parties have not arranged anything in this regard, the master franchise rights can therefore be transferred to a subsequent master franchisee, without the remaining master franchisee being assured of cashing in the value of the built-up organization.
Parties are therefore advised to expressly arrange the aforementioned aspects in advance in their agreement when concluding a master franchise agreement. This provides clarity for the master franchisor, master franchisee and the franchisees and may prevent many (interim) problems.
Ludwig & Van Dam franchise attorneys, franchise legal advice
Other messages
Article Franchiseplus: “Franchisors participate in franchisees” – dated June 3, 2020 – mr. AW Dolphin
Franchisors are increasingly participating in the franchisee's business. There are several benefits for both the franchisee and the franchisor.
Article The National Franchise Guide – “Corona discount on rent” – dated June 2, 2020 – mr. AW Dolphin
If a rental property is obliged to be closed due to corona, there may be a right to a rent reduction, according to the Northern Netherlands court.
Article Franchise+ – Franchisees enjoy the same protection as employees and commercial agents with regard to a non-competition clause – dated 7 May 2020 – mr. RCWL Albers
It often happens that, especially by franchisees, the validity of a post-contractual non-compete clause is considered too lightly.
The support agreement for the Retail sector in this Corona crisis – dated 15 April 2020 – mr. K. Bastian
On April 10, 2020, the Ministry of Economic Affairs, together with a number of landlords, retailers and banks, reached a support agreement.
Court rules that corona crisis does not constitute force majeure – dated April 10, 2020 – mr. AW Dolphin
If payment cannot be made due to a decrease in income, then there is not always a force majeure situation.
Important information for directors of franchisees associations: Online meetings and decision-making in times of corona – dated April 10, 2020 – mr. J. Strong
Emergency law provisions for legally valid decisions without physically meeting within the association structure.