Master franchising: a double dependency

Various franchise organizations in the Netherlands are based on a so-called master franchise construction, whereby the Dutch franchisor in turn is a franchisee of a foreign master franchiser, who has often designed the relevant franchise concept and operates it on such a basis in various countries . In principle, Dutch franchisees deal exclusively with their Dutch franchisor. On this basis it is relatively easy for many foreign franchise concepts to enter the local market with knowledge of the facts. In general, this figure works very well.

Sometimes, however, there are kinks in the cable. If disagreements arise between the Dutch franchisor and its franchisees, the situation essentially does not differ from that of a “normal” Dutch franchise organisation. However, it is a different matter when a disagreement arises between the master franchisor and the master franchisee. In practice, it sometimes happens that this relationship is terminated for various reasons. The question then is whether and to what extent the termination of the master-franchise relationship will affect the relationship between the Dutch franchisor and its franchisees.

The answer to that question depends somewhat on the nature of the franchise organization. It may be that, even after the termination of the master-franchise relationship, the Dutch franchisor can continue the franchise concept in such a way that not much other than a name change needs to take place. In such a situation, assuming adequate communication by the franchisor, it could be argued that the franchisees remain bound by their franchise agreements, since not much changes de facto for them. In other situations, however, the Dutch franchisor will no longer be able to deliver the agreed package of services, including, in many cases, the products from the master franchisor. As a result, the Dutch franchisor can no longer offer the agreed franchise concept to its franchisees and can therefore no longer actually comply with the franchise agreements. In some cases this will be attributable to him, in other cases there may be force majeure. In that case, however, depending on the specific circumstances, the franchisees may be able to dissolve their franchise agreements on the basis of the factual inability of the franchisor to comply with them. Again: the concrete circumstances of the case will be decisive in all cases. However, it is worth realizing that, especially from a franchisee’s perspective, a de facto double dependency is created when there is a master-franchise construction.

Ludwig & Van Dam franchise attorneys, franchise legal advice