Sale of the franchise organization, consequences for the franchisees?

Last week it was announced that the HEMA organization may be sold by Maxeda, the owner of the organization. HEMA also has a number of franchise locations. Does the sale of a franchise organization affect the franchisees?

Many franchise agreements specifically regulate the sale of the organization by the franchisor. Such provisions allow the sale of the organization by the owner of the formula. However, when selling, the franchisor will have to respect the interests of the franchisees.

The agreement will continue to exist, but the formula itself will continue to exist and a sale will not have a negative impact on the formula or the franchisor’s care obligations to its franchisees.

In the event that the franchise agreement does not regulate anything when the franchise formula changes hands, it is actually no different. The franchisees are confronted with a different owner of the formula, but that new owner will also take over the applicable franchise agreements and must respect and comply with them. In the event of non-compliance, this can be enforced – in extreme cases before the courts. Even if no provision has been included in the franchise agreement that pertains to this situation, the franchisee may not be disadvantaged in the event of a takeover of a franchise formula.

On the other hand, the franchisees are also obliged to comply with the franchise agreement. In principle, a transfer of the formula will not change this. Only a material change to the franchise formula by the new owner may give the franchisee the option of rescinding or voiding the franchise agreement. There is no question of a substantial change when, for example, the house style is adjusted, but this can be the case when, for example, the entire product line is changed. Nevertheless, great restraint should be exercised with measures in this regard.

Because a new franchisor can implement new policies, it is preferable that it is clearly stated that sale of the organization is possible, but that in that case the franchisor will have to keep an eye on the rights and interests of the franchisees. Including a corresponding provision in the franchise agreement can contribute to that clarity.

Ludwig & Van Dam franchise attorneys, franchise legal advice