End of main lease does not mean end of sublease with franchisee

On 7 July 2015, the Court of Appeal in Den Bosch (ECLI:NL:GHSHE:2015:2509) overturned a judgment of the District Court of Limburg on the concurrence of a franchise agreement and a sublease agreement. The franchisee is granted an advance on the damage.

Under the initial franchise agreement, the franchisee rented a car wash and included provisions on the termination of the lease. These provisions deviated from the mandatory legal regulation regarding the termination of the lease of industrial space. It is stipulated, among other things, that the franchise agreement will end if the rental agreement ends, without notice being required. The subdistrict court had approved this deviation.

Subsequently, the parties subsequently concluded a franchise agreement to replace the old franchise agreement with regard to the same location. The new franchise agreement was virtually identical to the first. The new franchise agreement once again deviates from the mandatory law regarding the termination of the lease of industrial space and once again includes a provision whereby the franchisee has authorized the franchisor to request approval from the competent subdistrict court judge for that deviation, also on his behalf. However, the Franchisor has not used that authorization this time. The subdistrict court therefore had not granted approval this time either.

The main lease agreement with the franchisor ends as a result of an arbitral award between the main lessor and the franchisor as the main tenant, and the franchisor therefore filed summary proceedings that the franchise agreement ended and the franchisee had to vacate the rented property. The court grants the franchisor’s claim.

Franchise appeals. For the time being, the Court of Appeal is of the opinion that the mere fact that the franchisor has granted an authorization to request approval, while that approval had already been granted, does not mean that it has waived the assessment to be carried out by the subdistrict court judge. It does not automatically follow from the previous approvals that that approval would also have been given for the present terms, because the circumstances were not the same. After all, previously the franchisee also had another location and with the new franchise agreement only one. The franchisee therefore did not have to expect that the franchise agreement would end prematurely without judicial review.

The franchisor still invoked Article 7:306 paragraph 1 of the Dutch Civil Code. According to that provision, a sublease agreement for business premises ends if the court declares that the leased property has been evicted. According to the franchisor, this is the case now that the main lease with the main lessor has ended on the basis of the arbitral award. For the time being, the Court of Appeal is of the opinion that the franchisor’s appeal to this provision fails, because the arbitral award cannot be equated with the eviction judgment pronounced by the court. In short, the sublease agreement has not ended according to the court. I consider this judgment debatable, because an arbitral award can be executed just as well as a judicial award and can therefore be equated with it.

The Court of Appeal is also of the preliminary opinion that there is a mixed legal relationship and that the termination of the franchise agreement cannot take place if the (sub)lease agreement has not been terminated. To this end, the Court of Appeal considers that if Article 6:215 of the Dutch Civil Code is not directly applicable – (among other things) because a franchise agreement does not concern a special type of agreement regulated by law – then that provision should in any case be applied by analogy. . The franchise agreement has therefore not been terminated prematurely.

The franchisee had meanwhile accepted the eviction, but claimed compensation for the damage suffered as a result. The Court of Appeal sets the advance on the compensation at € 2,000 per month that the franchisee can use for the maintenance of his family.

The present issue highlights that in certain cases franchisors are deemed to be competent and therefore omissions of formalities can be relied upon.

Mr AW Dolphijn – Franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Mail to dolphijn@ludwigvandam.nl