Within franchise organizations it often happens that the entire shop interior needs to be replaced. Franchise formulas evolve and require adjustment and innovation from time to time. If the concept is outdated, it is important that such revision takes place in one go, with all stores ideally being presented to the consumer in the new style at the same time.
In many cases, however, the franchise agreement does not provide for such an obligation to the franchisee. It goes without saying that it is very important to first test and evaluate such an operation in the Franchise Council. With proven pilot success and sufficient consensus in the franchise council, it is obvious that all stores will subsequently be converted. The franchisee can only be obliged to do so if an adequate reinvestment scheme is included in the agreement. This reinvestment scheme provides, among other things, for reasonable depreciation periods with regard to investments made previously. In the absence of such an arrangement, the franchisee cannot simply be expected to cooperate with the conversion. The feasibility of financing the conversion is further enhanced if it can be made clear to the bank that the financial scope has been created for the imminent restyling. It should be pointed out in this respect that when offering an entirely new contract after the end of the regular five-year term, it is not automatic that such restyling can be enforced without further ado. Case law has shown that the formulation of such additional conditions in the event of a contract extension may certainly not be required without further ado.
Franchisor and franchisee are therefore wise to anticipate major changes to their franchise formula by making adequate arrangements in advance. This prevents unnecessary problems during the sometimes necessary introduction of new shop fittings.
Ludwig & Van Dam franchise attorneys, franchise legal advice