In an earlier contribution to First Formula (November 10, 2006) about turnover related matters, I asked whether a unilateral change of only the rent in a mixed (sub)rent/franchise relationship does not improperly affect the entirety of the conditions that have been agreed between the parties. After all, for the franchisor and franchisee, the total of the fees and payments will ultimately determine the mutual profitability, and the components of fee, rent, bonus, etc. are interrelated in a sublease relationship with the franchisor. The case law on this is scarce. This question has now been answered in one case by the subdistrict court judge.
The facts were as follows. The relevant franchisor charges each franchisee an equal fixed percentage of turnover in fees and a fixed percentage of turnover in rent. The sublet is therefore sometimes higher and sometimes lower than the actual main rent. The idea behind this is that this system gives the organization national coverage and the franchisee at B locations benefits from the name recognition generated by their colleagues at A locations and thus (indirectly) pays for it. On the other hand, the franchisees at the A locations benefit from a rent subsidy and it becomes possible (often only because of this) to set up a profitable operation at these locations. This in view of the ever-increasing rents at such locations, with square meter prices at A1 locations of sometimes; € 1,200 ex VAT per square meter per year are no longer an exception and are often no longer affordable for an individual franchisee.
In fact, the franchisor thus functions as a conduit for the rent subsidy, according to the subdistrict court judge. Simply unilaterally lowering the rent in accordance with the norms of the law would therefore undermine the total collective system to which the franchisee has also conformed. After all, it will be clear that franchisees who pay less than the real rental value will not speak up!
The remarkable thing about the ruling is that the subdistrict court has determined that in a mixed lease-franchisement relationship, the total agreed remuneration (rent and fee) remains decisive under certain circumstances and the tenant therefore cannot simply reduce one part thereof, in this case the rent. may require by simply invoking the law on amendment of the rent to the local market rent.
In fact, it is of course no different in a branch company. The “expensive” branches give the right to exist to the branches in lesser locations. The advantage of this ruling is therefore that it remains possible for franchise organizations to remain established at A1 locations through such a method. That is of course a profit for both franchisor and franchisee compared to its competitor; the branch company. The ruling therefore does justice to the franchise practice.
Of course, in individual cases it is always important to request permission in advance from the subdistrict court judge for the sake of certainty that deviate from the legal system for determining rents.
Ludwig & Van Dam franchise attorneys, franchise legal advice