Recently, the Court of Appeal ruled that an obligation of the franchisee to offer the franchisor the franchise business and the premises in which this business was operated at the end of the franchise agreement was not valid in that case, because this was contrary to would be with European competition law. As a result, the franchisee concerned was free, contrary to the contract, to continue the business under a different formula after the contract had expired.
According to the court, such a purchase option, which means that a different formula no longer has a chance, should be seen as an indirect restriction of competition, i.e. both a restriction of competition in services provided by franchisors in the same sector, and a restriction of competition at the consumer level. . According to the court, this is in violation of the Competition Act. This law is precisely intended to promote competition. Provisions restricting competition must meet the strict requirements of the European Block Exemption for Vertical Agreements. This means that the duration of an injunction after the franchise agreement has expired may not exceed one year and the restriction of competition must be necessary to protect the know-how of the franchisor. There appeared to be no know-how to be protected and a purchase option is, by its very nature, an infinite prohibition of competition, according to the Court of Appeal.
The Court of Appeal implicitly considers that the ruling might have sounded different if the franchisor had sufficed with a so-called matching right, which would only have given the right to acquire the company for the same price as another. After all, this promotes competition.
The in itself justified wish of the franchisor to retain the locations as much as possible led to the opposite being achieved due to the wording in the agreement.
In the case of offer obligations and purchase options in franchise relationships, it is therefore important to keep a close eye on the limits of competition law when considering the principles of freedom of contract. There is a clear trend that competition law is intervening more and more in day-to-day franchising practice and sometimes serves as a successful crowbar to set aside contract provisions. We have previously written in this section about the possible consequences of price maintenance in franchise relationships, which can also result in the nullity of the entire agreement.
Ludwig & Van Dam franchise attorneys, franchise legal advice