The early termination of the franchise agreement

Recently, on August 27, 2008, a judge ruled on matters such as whether a franchisee was allowed to leave a franchise chain prematurely. That turned out to be the case. What was going on?

A self-employed person had entered into a franchise agreement with a franchisor in the hope of operating a profitable store. The franchise agreement stated that the high quality of the products was characteristic of the formula, as well as that the independent entrepreneur could count on proper support from the franchisor. In return, the independent entrepreneur had to pay a monthly fee to the franchisor.

However, there were many complaints from various franchisees about the poor quality of the products they were supposed to sell. It was also complained that the franchisor offered (almost) no form of support, although it was contractually obliged to do so. For these reasons, an urgent letter was sent to the franchisor on behalf of the interest group of the franchisees, in which the various complaints were made known. In short, the franchisor was also asked to properly fulfill its obligations.
A few months later, however, it turned out that the franchisor had not made amends; at least not enough according to the franchisees. A further letter was therefore sent to the franchisor in which the complaints about the formula were once again mentioned and in which the franchisor was again requested to improve. A clear ultimatum was given by the franchisees in which the latter had to be done, but at the ‘moment suprême’ the franchisor indicated that it still needed a few more months. Several franchisees, including the aforementioned independent entrepreneur, did not want (or could) not wait for this and terminated the franchise agreement in the meantime. The franchisor did not agree with this and demanded that the independent entrepreneur continue to comply with the franchise agreement through summary proceedings.

The preliminary relief judge rejected the franchisor’s claim and found that the franchisor had been asked in the first letter to take a number of measures and to provide information to the franchisees. The franchisor had not complied with this request (in time), but had merely rejected the complaints. Subsequently, however, the franchisor was once again reminded of the complaints and requests of the franchisees and, in the opinion of the judge in preliminary relief proceedings, too little had been done with this. The judge also pointed to all kinds of specific abuses within the formula. The interim dissolution of the franchise agreement was therefore allowed, according to the court.

The interim dissolution of this franchise agreement was therefore allowed by the court. This was partly due to the fact that a very extensive file had first been built up by the self-employed person, so that the shortcomings of the franchisor could also be demonstrated. Since the assessment of whether an interim dissolution is permitted depends strongly on the facts and circumstances, a franchisee must ensure that he does not take such a step too lightly. Without a well-constructed file, a court could rule that the franchisee has prematurely terminated the franchise agreement too rashly and that the franchisee is liable to pay damages to the franchisor. And that can of course be a very bitter pill to swallow.

Ludwig & Van Dam franchise attorneys, franchise legal advice