Forced to switch to a different franchise formula at the existing location?

If a franchise formula ceases to exist, for example if it is incorporated into another organisation, the question may be whether the franchisee is also obliged to be incorporated into the new formula. On 16 May 2018, the Central Netherlands District Court, ECLI:NL:RBMNE:2018:2244, rendered a judgment in a long-running dispute between Jumbo and one of its franchisees. 

The franchisee was a subtenant of the franchisor’s business premises. When the franchisor organization was taken over by Jumbo, the franchisee was required to operate the Jumbo formula instead of the Super de Boer formula. The Court of Appeal of Arnhem-Leeuwarden previously established that the franchisee does not have to allow the Jumbo formula to be imposed on him and was therefore entitled to choose a different formula when the Super de Boer formula was discontinued. The franchisee wanted to continue exploiting under its own formula “Kippersluis”. 

The owner/main lessor of the commercial space had terminated the main lease with Super de Boer on 24 April 2013, with the result that the franchisee had to vacate the retail space on 15 August 2013. As a result, the sublease agreement between the franchisee and the franchisor was still ongoing, but the franchisor (also the sublessor) was unable to implement it. The franchisee claimed compensation for damages relating to the period from August 15, 2013 to September 8, 2015. That is the period that the sublease agreement still existed, but could not be performed. The core of the dispute is therefore who is responsible for the premature departure of the franchisee from the retail space. 

In the opinion of the subdistrict court, the franchisee should not have assumed that it would be able to operate the supermarket under the name “Kippersluis” at the same location, given the intention of the parties when concluding the sublease agreement. The (sub)lease and franchise agreement clearly included a destination for the leased property, namely operation as a Super de Boer formula. Because the franchisee agreed at the time to the franchisor’s irregular termination of the franchise agreement, the franchisee also agreed to terminate the use of the Super de Boer formula in the business premises. Now that it had been agreed that the industrial space could only be used for the operation of the Super de Boer formula, the franchisee bears the risk that the leased property is no longer available. The question is what the judgment would have been if the franchisee did not agree to terminate the Super de Boer format, but the format nevertheless ceased to exist. 

In case of (proposed) formula changes, it is important to carefully consider the contracts with third parties. In the case described, the attitude of the (main) lessor was crucial. 

mr. AW Dolphin  – franchise lawyer 

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