More choices for fast food entrepreneur

Court of Leeuwarden

In the competitive market of fast food concepts, those who have access to their own premises often determine which formula may be used. A recent judgment of the Court of Appeal of Leeuwarden confirms this. The case is as follows.

A franchisee has concluded a sublease agreement and a franchise agreement with the franchise organization. Afterwards, the franchisee acquires ownership of the property. As a result, the franchisee also becomes a (main) lessor in addition to being a subtenant and thus leases to the franchise organization, which in turn (sub)leases to the franchisee. Incidentally, this in this case by companies affiliated to the franchisee.

The franchisee has now concluded that the formula used, which has also been made mandatory in the sublease agreement and is linked to the franchise agreement, no longer suits him in the (changed) local market situation. For reasons of business economics, the franchisee wishes to apply a different formula. The franchisee therefore wishes to simultaneously terminate the franchise agreement and the main rental agreement and enter into a partnership with another formula. The consent of the court is required for the termination of the latter agreement. Without termination of the main lease agreement, termination of the franchise agreement has little effect, given the link between the two agreements and formula destination in the sublease agreement. On appeal, the Court of Appeal assesses the eviction thus requested on the basis of a (subsidiary) general weighing of interests, thus ignoring the (primary) appeal to urgent personal use for procedural reasons. It is particularly worth mentioning that, in the context of this weighing of interests, the Court of Appeal is of the opinion that the entrepreneurial interest, partly due to increasing competition from its own franchisor, benefits from the possibility of a free choice of the franchise formula to be used. According to the Court of Appeal, it must be possible to use the property that has meanwhile been acquired. The Court of Appeal also considers it important that the franchise organization itself has failed to strengthen its position by, for example, acquiring the property itself. Furthermore, the franchise agreement has lasted for more than 15 years and the franchise organization has made little or no investment in the relevant business premises. The Court of Appeal thus concludes that the weighing of interests is in favor of the franchisee and entails that the main lease may be terminated, so that it no longer constitutes an obstacle to the choice of its own formula.

Franchisees are generally wise to weigh up the choice of a franchise formula in relation to the situation in which they use the premises from which the franchise formula is operated. Naturally, the nature of the non-competition clause, the financial forecasts as provided by the franchisor and other conditions must also be taken into account. After all, entering into the franchise relationship also relates to these and various other components.

Mr Th.R. Ludwig  – Franchise attorney

Ludwig & Van Dam Franchise attorneys, franchise legal advice Would you like to respond? Mail to ludwig@ludwigvandam.nl