For clarity

The last period shows that discussions regarding goodwill payments at the end of a franchise partnership are still numerous. These discussions usually boil down to a franchisee’s opinion that his franchisor should pay him a goodwill amount for the customer base built up by that franchisee during the term of the franchise agreement. This discussion occurs in particular in situations where either the operation of the franchise establishment in question is completely discontinued or the franchisor takes over the establishment. This discussion is less common when the franchisee, within the rules of the franchise agreement, transfers his business to a successive franchisee, because in those cases a market-based acquisition price is often paid.

In the other two situations, however, the discussion does take place, whereby the franchisee concerned is undoubtedly inspired by the legal provisions regarding agency. Without wanting to go into detail here, it should be noted that it does include a goodwill arrangement at the end of the agreement. However, such a regulation does not exist in franchising relationships. Therefore, unless otherwise agreed between the parties, a franchisor is not obliged to make any goodwill payment to a departing franchisee on the basis of the franchise agreement as such. If that does happen, then this is solely the result of negotiations between the parties and the payment, where appropriate, of a price in line with the market. Goodwill, it must be repeated, is pre-eminently a subject that is subject to market forces and, unless otherwise agreed in principle, is at the discretion of the entrepreneurs involved.

Ludwig & Van Dam franchise attorneys, franchise legal advice