Can a prospective franchisee invoke a right of retention to reclaim an entry fee if a franchise agreement is not concluded after the pre-agreement has been concluded? The District Court of Gelderland ruled on this matter on 26 November 2018, ECLI:NL:RBGEL:2018:5727 (Hot Rod City Tour).

After the parties had entered into a letter of intent to operate a franchise business in Nijmegen, the aspiring franchisee had rented a building. Subsequently, the parties entered into a preliminary agreement. The aspiring franchisee then became an employee of the franchisor for 5 months to set up the company and in the hope of negotiating a franchise agreement. That employment contract has been extended once by two months. During the negotiations, the franchisor made a number of vehicles available to the aspiring franchisee, who was employed, in the context of the operation.

Although the aspiring franchisee had paid the franchisor an entry fee of € 35,000.00 in anticipation of a possible agreement on a franchise agreement, no franchise agreement was signed by the parties before the expiration of the extended employment agreement. The parties have also continued to talk after the end of the employment contract and the activities have also continued. The franchisor has paid rent for the property for several months, but the aspiring franchisee has terminated the lease and the franchisor is requesting the return of the vehicles for that reason. The aspiring franchisee refuses to return the vehicles because, among other things, he is claiming back the entrance fee of € 35,000.00, now that no franchise agreement has been concluded.

Pursuant to Section 3:290 of the Dutch Civil Code, a successful appeal to a right of retention requires that the aspiring franchisee (a) was in actual control of the vehicles at the time the lien was exercised, (b) has a due and payable claim against the franchisor and that (c) there was a connection between the claim and the prospective franchisee’s obligation to return the vehicles to the franchisor’s control. It is clear that the vehicles are with the franchisee. The question therefore remains whether there is a due and payable claim that is sufficiently related to the obligation to return the vehicles.

It has been established that Article 7 of the preliminary agreement stipulates that the prospective franchisee will pay an entrance fee of € 35,000.00 for the possibility of concluding a franchise agreement. If the franchise agreement is concluded, this entry fee will be settled with the franchise fee in accordance with Article 7. The article also stipulates that the entrance fee cannot be reclaimed if the conclusion of the franchise agreement becomes impossible for reasons that cannot be blamed on the franchisor. The court therefore rules that for the time being it cannot be ruled that it is (fully) due to the franchisor that the franchise agreement has not been signed by the parties. It has therefore become insufficiently plausible that the aspiring franchisee can claim reimbursement of the entrance fee of € 35,000.00.

In this case it seems that the prospective franchisee was insufficiently aware of the content and consequences of the agreements made when concluding the pre-agreement. Timely and expert advice is always advisable.

mr. AW Dolphijn – franchise lawyer Ludwig & Van Dam Franchise attorneys, franchise legal advice.

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