How do I keep my location? – June 6, 2019 – mr. K. Bastian

Location is of great importance to franchisors and franchisees, especially in the retail sector. This is because an entrepreneur, especially with regard to turnover, is in many cases largely dependent on customer flows. It is important to realize that acquiring and maintaining a place of business involves various legal aspects.

Managers, governments and owners of retail properties, shopping areas and shopping centers try to bring order to the range of shops by means of sectoral rules. With a varied and dispersed store image, an attempt is made to steer as many customer flows as possible in the right direction. Such branching rules do not always appear to be valid. For example, a municipality was recently reprimanded for making the exercise of a retail activity conditional on proof of an economic need or market demand.

When renting retail space in shopping centres, a clause is regularly included in which it is stipulated that the lessor is obliged to ensure a balanced sector division within the shopping centre. However, this does not mean that the tenant can and may rely on such branching at the same time guaranteeing exclusivity, and this is also only permitted to a limited extent under competition law. After all, the branching can (gradually) change.

Grip can also be exerted on a location in other ways. For example, the lessor of a business space can include in the rental agreement the purpose for which the business space may only be used (purpose of the leased property). This can also include that the space may only be used for a specific franchise formula. As business space becomes more important to the format, franchisors are also seen trying to negotiate a purchase option on the store’s business or inventory in order to secure the operation of the format at the point of establishment.

Franchisees, in turn, will want to see a certain guarantee with regard to their location. This can be achieved, for example, by agreeing on a certain exclusive territory. However, the absence of such an agreement does not mean that a franchisor or a lessor is allowed to compete (to a significant extent) with the franchisee or the lessee.

In practice, business locations are sometimes ‘shielded’ by tenants or other users. This refers to the situation in which if an entrepreneur wants to move to another nearby location, it is agreed that no competing activity will be established at the old (original) location in any case. In this way, an attempt is made to keep competition out. However, it is questionable whether such a method of shielding is acceptable and will stand up in proceedings.

The battle for good business locations is therefore not easy, but a legally complex affair. To strengthen the grip on the location, there seems to be a lot of possibilities for both the franchisor and the franchisee. It should be noted, however, that there will always be various preconditions that may limit these possibilities. Ultimately, the question is whether the grip on locations can be guaranteed as much as possible.

mr. K. Bastiaans – franchise lawyer

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