Franchise agreements of an indefinite term cannot be terminated just like that

Contrary to what is sometimes thought, franchise agreements for an indefinite period cannot be terminated just like that.
In practice, franchise agreements of indefinite duration are not very common. If this is the case, there is sometimes a link to a (sub)lease agreement. If a notice period has also been agreed between the parties, an agreement of indefinite duration can be put into effect in this way. However, this is fundamentally different when there is a franchise agreement without rental link, and without notice period. These situations therefore concern franchise agreements of an indefinite period, in which the parties apparently have not arranged anything regarding the possible regular termination of that agreement.

When there is such an agreement, it is sometimes thought that a franchise agreement in that form can always be terminated with a reasonable notice period. Nothing could be further from the truth. The Supreme Court noted in a relevant judgment in this regard that “Even if it follows from the nature of a specific distribution agreement that it can in principle be terminated without further ado, the requirements for reasonableness and fairness in connection with the concrete circumstances of the may mean that termination only leads to termination of the agreement if there are sufficiently compelling grounds for termination”.

In other words: there must be a compelling reason to terminate an agreement of this nature. This requirement is not met. It is precisely in a long-term relationship that a stable line of conduct has emerged between the parties in the collaboration. The party against whom the agreement is then terminated therefore need not quickly take into account or expect that such a termination has or could have occurred. There is therefore a great responsibility here for the terminating party. An urgent reason must then be considered. This urgent reason may be, for example, that the chosen form of distribution ceases to exist or that the commercial activity as such no longer has any right to exist.

If the franchisor and franchisee wish to terminate their agreement in such a situation under normal circumstances, they must do so in good consultation, in the absence of any liability for damages on the part of the terminating party towards the straggler. It is of course better not to allow franchise agreements of an indefinite duration to continue without a proper notice and termination ground or term.

Ludwig & Van Dam franchise attorneys, franchise legal advice