It is a non-competition clause at the end of the lease

In the judgment of 26 March 2024, ECLI:NL:GHSHE:2024:1035, the Court of Appeal in ‘s-Hertogenbosch annulled a court judgment and ruled that a franchisor was not entitled to rely on a post-competition clause.

A franchisor rents a retail space to a franchisee. The franchisee terminated the lease and franchise agreement. The franchisor in turn rented the retail space from someone else, but the franchisee had also terminated that lease agreement. After the lease and franchise agreement expired, the franchisee continued the business activities under its own name within a walking distance of less than 100 meters. However, the franchise agreement contains a post-competition clause that provides for a prohibition on carrying out competitive activities in an area with a radius of 2 kilometers around the location or any other company of the franchisor.

The geographical description of the post-competition ban implies that it concerns the specific location of the franchisor where the franchisor could establish its business. Now that the location is no longer a location of the franchisor, the franchisor cannot now enforce the non-competition clause against the former franchisee. The court therefore ruled that there was no violation of the non-competition clause.

Article 7:920 paragraph 2 of the Dutch Civil Code stipulates, among other things, that the geographical scope may not be wider than the area within which the franchisee has operated the franchise formula on the basis of the franchise agreement in question. The court seems to be of the opinion that the text of the post-competition clause itself limits the operation of the post-competition clause to only the area where the franchisor is actually active. Because the franchisor is no longer active in the area in question, an appeal to the post-competition clause is also not valid, according to the court.