Takeover of a (sub)lease agreement upon change of franchisor

(sub)lease agreement, franchisor, franchisee

The court recently established that the transfer of franchise rights from one franchisor to another does not automatically mean that a possible (sub)lease agreement between the franchisee and the new acquiring franchisor/main lessee has also been concluded.

A franchise agreement had been concluded between the old franchisor and the franchisee, under which the franchisee paid a turnover-related fee to the franchisor for the use of the retail space for the use of the retail space.

At some point, the old franchisor transferred the rights to the acquiring franchisor. The acquiring franchisor then sent the franchisee a (sub)lease agreement with regard to the retail space, which states, among other things, that the acquiring franchisor is the lessor and the franchisee is the lessee.
After the franchisee has left a number of invoices unpaid, the franchisor/main tenant eventually claims eviction. The franchisee opposes this. At the hearing, the franchisee argues that he has no objection to entering into a rental agreement with the franchisor, but points out that he does not yet agree with the franchisor on the conditions. For example, a turnover-related fee for the use of the retail space had been agreed with the previous franchisor at the time, while the new franchisor wished to agree on a fixed monthly rent. The parties also have no agreement with regard to the amount of the rent to be paid. Despite several requests from the franchisee to the franchisor, the franchisee has never spoken to the person he would like to speak about this on the phone or in person.

The subdistrict court judge ruled that it has not been established whether a rental agreement has now been concluded between the franchisor and the franchisee. Although the franchisee has paid the lease term desired by the new franchisor on a number of occasions, he maintains that he did so out of fear of eviction. The subdistrict court considers that the fact that a number of installments have been paid and that the franchisee actually continued to use the retail space is in itself insufficient to assume that a lease has been concluded between the parties. After all, the franchisee already used the retail space in the context of the previously concluded franchise agreement. The fact that the conversation desired by the franchisee never materialized also prompts the subdistrict court judge to consider that it is also for this reason that it has not been established that the franchisee has agreed to the draft rental agreement. In addition, the parties dispute about the amount of the actual rent.

The above shows that in the case of a contract takeover between two franchisors, it is of paramount importance that any (sub)lease agreement is taken over correctly and – in the event of any amendment to it – agreement must first be reached with the existing franchisee before takeover. This prevents many troubles afterwards and offers legal certainty for both the franchisee and the franchisor. The franchisor’s duty of care further entails that the franchisee may expect that his interests are fully safeguarded and arranged in the event of a possible takeover. If this is not the case, it can lead to the undesirable problems described above.

Ludwig & Van Dam franchise attorneys, franchise legal advice