Standstill period: four weeks is and remains four weeks!

Standstill period: four weeks is and remains four weeks!

The Franchise Act contains various provisions that are intended to restore the existing imbalance of power between franchisor and franchisee, according to the legislator. One of those provisions is Article 7:914 of the Dutch Civil Code, which stipulates the standstill period of four weeks. A franchise agreement concluded without observing this standstill period is deemed to have been concluded in violation of the law and is therefore voidable. By introducing this four-week standstill period, the legislator wanted to give the franchisee time and opportunity to investigate the potential possibilities and risks of operating a franchise location. By introducing this standstill period, the legislator wanted to prevent the franchisee from wandering about these options. To prevent the franchisee from being put under pressure, it is prohibited during this standstill period to change the draft franchise agreement (unless this is to the advantage of the franchisee) or any agreement linked to the franchise agreement, for example a (sub)lease. , to close or to request investments from the franchisee.

Almost all franchise agreements adapted to the Franchise Act explicitly state that parties respect the four-week standstill period. However, whether this is actually the case must be determined on the basis of the facts and circumstances.

For example, in one of the few rulings to date in which a judge has been submitted to assess whether the standstill period has been respected, it has been ruled that the interpretation of the legal provision is unambiguous. The ruling of the North Holland District Court of March 15, 2023 [1] established that the franchise agreement was indeed signed within the statutory period of four weeks. There must be a reflection period of at least four weeks between providing the legally required information referred to in Article 7:913 of the Dutch Civil Code and signing the franchise agreement.

In this matter, the franchisor has initiated a collection procedure because the franchisee has left a number of invoices unpaid. In this apparently simple procedure, the franchisee, apparently for the first time, in defense against the collection claims, invoked the voidability of the franchise agreement because the standstill period had not been observed. The franchisor’s defense that the franchise agreement had a much later effective date so that the four-week standstill period was still respected was simply ignored by the assessing subdistrict court judge. Only the signing date of the franchise agreement is relevant and this was within four weeks after an amended draft of the franchise agreement was presented. According to the subdistrict court judge, the franchisee has therefore justified the annulment of the franchise agreement. The franchisor’s claims are therefore rejected.

It is important that the parties have established that an amended version of the franchise agreement was sent to the franchisee one day before signing the franchise agreement. This immediately establishes that the franchisee has only had one day to assess this amended franchise agreement. It is therefore obvious that the subdistrict court judge ruled that the standstill period had been violated on the basis of the text of Article 7:914, paragraphs 1 and 2.

In a more recent ruling by the District Court of The Hague dated December 29, 2023 [2], the judge assessed a comparable situation in summary proceedings. In this matter, the franchisee had requested in summary proceedings to suspend the operation of a post-contractual non-compete clause. The franchisee has argued in these proceedings that he cannot be held to a post-contractual non-compete clause because he would have annulled or dissolved the franchise agreement extrajudicially.

One of the grounds on which the franchisee believed that the franchise agreement had been voided was that the standstill period had not been observed. In this matter too, according to the franchisee, the franchise agreement would have been changed after the first draft had been handed over, as a result of which there would not have been a four-week reflection period. In this matter, however, the franchisor disputed that the franchise agreement had been changed during this period. The judge ruled that it has been established that the franchise agreement signed in August 2022 had already been received by the franchisee from the franchisor in June 2022. Because the franchisor has categorically disputed that changes were subsequently made, the summary proceedings judge ruled that it was up to the franchisee to prove that changes had taken place. The franchisee has not succeeded in this, so the judge rules that it cannot be assumed that the four-week standstill period has been violated. This is especially true now that the summary proceedings judge has established that the parties had already been working together on the basis of the same formula for a long time (since November 2021) prior to signing the franchise agreement. The franchisee has not made it plausible that the conditions of this existing collaboration deviate in essential parts from the conditions of the franchise agreement, so that the summary proceedings judge considers the franchisee to be familiar with these conditions. The judge ruled that it is therefore unlikely that the franchisee was unable to make a well-considered decision. According to the summary proceedings judge, this is the purpose of the standstill period, so that the judge finds that it is not likely that the extrajudicial annulment of the franchise agreement by the franchisee will be upheld in substantive proceedings.

The summary proceedings judge is of the opinion that the other ground for annulment, error about the possibilities, cannot be made plausible by the franchisee in summary proceedings, including a reference to the long-standing cooperation and familiarity of the franchisee with the formula. so that in the eyes of the judge the franchise agreement between the parties remains in force. Because the franchisee had focused all his attention on the unreasonableness of the post-contractual non-compete clause and had said nothing about (the reasonableness of) the non-compete clause during the term of the franchise agreement, the summary proceedings judge did not have to form a judgment on this.

In both statements it is clear that the standstill period can only be interpreted in one way. There must be at least four weeks of reflection time between providing the necessary information and signing the franchise agreement for the franchisee to consider what is being offered to him. This term cannot be deviated from, for example by using a later commencement date in the franchise agreement. But if changes are implemented during those four weeks, it is up to the party that invokes them to demonstrate that changes have actually been implemented. If that fails, the four-week period will continue unchanged.

[1] District Court of North Holland ECLI:NL:RBNHO:2023:2636

[2] District Court of The Hague ECLI:NL::RBDHA:2023:20931

mr. T. Meijer
Ludwig & Van Dam lawyers, franchise legal advice.
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