The importance of a correct link between the franchise agreement and the (sub)lease agreement has recently become clear again in a ruling by a subdistrict court judge in interlocutory proceedings. In the franchise agreement concluded between the franchisor and franchisee, a clear link was included with the underlying sublease agreement. The franchise agreement also stated that the franchisor and franchisee will jointly submit a request to the competent subdistrict court to have this link approved. The franchisor and franchisee had actually submitted such a request, after which the subdistrict court judge granted the requested approval.
Unfortunately, a dispute arose between the franchisor and the franchisee. The franchisee ceased the actual operation of the establishment for reasons of its own. The franchise agreement contained an express exploitation clause on which the franchisor invoked. Since the franchisee did not intend to resume operations, the franchisor was forced to terminate the franchise agreement. Due to the aforementioned link, the termination of the franchise agreement also brought the sublease agreement to a simultaneous end.
The franchisor and the franchisee eventually came to face each other in preliminary relief proceedings before the subdistrict court judge. The franchisor requested that the court order the franchisee to vacate the premises. The judgment of the subdistrict court judge whether the eviction could be granted was clear. As a result of the earlier approval of the link agreed between the franchisor and franchisee in the franchise agreement, the sublease agreement also came to an end. The eviction was granted.
This judgment could have turned out very differently if the link had not been adopted. In that case, the franchise agreement would have come to an end, but the termination of the rental agreement would be based on the statutory tenancy law provisions must be assessed. This gives the tenant greater protection and the cancellation is subject to strict requirements. This can result in a situation where the franchise agreement comes to an end but the franchisee receives tenancy protection and the (sub)lease agreement continues. As a result, the franchisor does not regain its location. Ultimately, of course, this is the underlying reason why the franchisor and franchisee agree on a link between the franchise agreement and the lease.
Many franchise agreements include a link between the franchise agreement and the rental agreement. In general terms, it is then agreed that the lease will come to an end if the franchise agreement is terminated and vice versa. However, this is a major curtailment of rent protection. If the franchisor and the franchisee stick to this contractual link and do not take the next step of requesting approval from the subdistrict court, they run a very real risk that the link will not be taken for granted in any subsequent (legal) proceedings and may even be rejected. The franchisor and franchisee then unwittingly remain condemned to each other with all the complications that this entails. Because not only does the franchisor not automatically get its location back, the franchisee’s rental payment obligation continues to run.
However, the approval to be granted by the subdistrict court judge is not automatic either. The requested link will be strictly assessed. If the franchisee is unreasonably disadvantaged by the link because too much of the rent protection is undone, the subdistrict court judge will withhold approval, in whole or in part. The extent to which security of tenure provisions are sidelined must therefore be assessed on a case-by-case basis. Including standard texts in a franchise agreement results in numerous complications. As is so often the case, the drafting of such clauses remains tailor-made.
Ludwig & Van Dam franchise attorneys, franchise legal advice