Link rent and franchise depending on goodwill arrangement

A ruling by the Central Netherlands District Court of 15 July 2015, ECLI:NL:RBMNE:2015:9701, shows that a request to link a rental and franchise agreement may depend on whether the decrease in rent protection can be compensated. with an agreed goodwill consideration.

The law stipulates that a lease for a business space can only be terminated by the court. The rent therefore does not end after an agreed rental period of, for example, 5 years. This is an important form of rent protection. This does not apply to franchise agreements. There may therefore be a situation where the franchise agreement and the rental agreement are not in sync. This is undesirable for a franchisor who is also a lessor. In that case, the formula cannot simply be continued at the location in question.

In the aforementioned case, the franchisee and the franchisor requested the court, among other things, to allow in advance that, if the franchise agreement ends, the rental agreement also ends immediately, so without the judge having to assess this at that time. This is possible in itself, but the court will only allow the request if  the position of the lessee/franchisee is not materially affected by this or his position in society compared to that of the lessor/franchisor  is such that he does not need security of tenure.
It has not become apparent that the tenant/franchisee does not need rent protection in view of its social position. The court must therefore assess whether the rights of the lessee are substantially affected by the deviating terms.
The court considers it important that, if a franchisee is bound by a franchise formula, the franchisee  hardly builds up its own business flow (goodwill). Therefore, the tenant/franchisee does indeed need security of tenure.

Because the franchise agreement stipulates that in the event of termination of the lease due to urgent personal use by the lessor/franchisor, the lessee/franchisee is entitled to a substantial goodwill compensation, the court deems the breach of rental protection to be sufficiently compensated.

No goodwill compensation applies to the other options for terminating the lease, and the court deems in principle no reason to allow the lease to end in advance if the franchise agreement also ends. The franchisor has explained that the franchise agreement can only be terminated by judicial intervention. The court agrees with this. After all, the rent protection through a judicial review is in fact restored. The amount for which the decrease in rent protection can be adequately compensated will depend strongly on the circumstances.

mr. AW Dolphijn – Franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice.

Do you want to respond? Go to dolphijn@ludwigvandam.nl