Locations on the move

There is a lot of construction going on in the Netherlands. New shopping centers are springing up here and there. Old ones are modernized and renovated. This offers the retail trade, and therefore also franchise organisations, various opportunities, but also threats. In practice, it has recently become increasingly common that existing locations, as a result of new developments elsewhere, or restructuring of existing shopping centres, suddenly appear to be much less ‘in the loop’ than was initially the case. The other way around also occurs but, perhaps obvious, this is not always heard of on this side. 

First of all, in situations such as those described above, the responsibility of the franchisor comes into play with regard to any sales and result forecasts issued at the time for the benefit of the local franchisee and the market and location research carried out. In particular, the question then arises whether the franchisee could or should have known that the new developments in question would occur. If, all things considered, that is the case, this may lead to claims by the franchisee concerned against his or her franchisor, with any corresponding liabilities. It is of course also possible that the described new developments were really unforeseeable. In that case, but also, certainly in the first instance, open and clear communication between the parties is obvious, aimed at jointly creating a workable solution to the problem that has arisen.

Such a solution could be, corresponding to the feared loss of results, to reduce the operating costs of the company concerned. The first consideration for this is the rent to be paid by the franchisee. In situations such as those described above, the rent is often based on the status of the location in the old situation. If that status drops, then in principle, taking all interests into account, the rent must in principle be adjusted downwards. If no agreement can be reached with the (main) lessor on this matter, a course of action may be indicated in the Subdistrict Court. You can also choose to call in the Commercial Rent Advisory Committee (BHAC) in order to try to obtain a revaluation of the leased property with a corresponding rent reduction.

A more radical option is relocation of the franchisee. A condition for this is, of course, that suitable replacement business space must be available. Here too, it is recommended that the franchisee and the franchisor jointly consider the possibilities in good consultation.
An intermediate solution that is sometimes chosen in practice is whether or not the franchisor temporarily supplements a rent reduction or otherwise compensates for the costs that can be influenced by the franchisor. In this context, however, care must be taken to ensure the independence of the franchisee concerned. An Implementing Agency and/or the tax authorities could at any time be of the opinion that such subsidy schemes undermine that independence too much, which creates the risk of a fictitious employment relationship. Careful consideration in advance in this context is therefore advisable.

Ludwig & Van Dam franchise attorneys, franchise legal advice