What to do with your local competition

Of course, it is always annoying for the operator of a snack bar, for example, when a competitor joins. However, sometimes it is also illegal. If the arrival of a competitor is illegal, this can very well be stopped.

The agreement that restricts competition

If the operator of a franchise company rents retail space from a lessor, which lessor rents out even more adjacent retail space, it may be agreed that the tenant in question is the only one in the area who is allowed to operate a comparable type of business in a retail space of the landlord.

The greater the distance from the competitor, the less the impact of the competition. It is often not possible to determine with certainty exactly where the border lies. It can therefore be a good idea to agree in advance on the side of a map, for example, up to which limit the operator of the snack bar does not have to expect competition from the landlord. A well-drafted clause that allocates an exclusive market area may fall under the exceptions provided by competition law. 

We do see similar agreements with landlords of retail spaces in shopping centres. For example, there is an industry protection agreement with the lessor that regulates which type of shops, for example, may have a number of square meters of sales floor.

The aim is to offer the shopping center a variety of different shops, so that it becomes the most attractive shopping area possible. In itself it is not surprising that the sector protection agreement made must be fulfilled by the lessor. However, an industry protection agreement may be prohibited under competition law because it restricts competition. Competition law does make an exception to this prohibition for a period of 6 years after the date on which the lease of the first retailer in the shopping center commenced.

If the landlord does “customer cock”.

Another situation is the case in which no agreement has been made with the lessor about competing shops in adjacent business premises of the lessor. By the way, it will  be the case in the vast majority of situations.

Even in those cases, however, there may be unfair competition. In particular, the issue here is that the landlord himself will operate a competitive snack bar in a nearby retail space, with a bias, which the existing tenant need not have considered when entering into the lease. After all, according to the law, the landlord must provide the tenant with undisturbed enjoyment of the rental. The landlord will not succeed in this, if the landlord himself does “customer cock” at the tenant.

The unlawful “customer cock” described above by the landlord applies even more if an obligation is included in the rental agreement to use the rented property as a snack bar. This will usually be the case if, for example, a franchise agreement has been concluded with (the organization of) the lessor. If the lease agreement with the landlord/franchisor states that the tenant/franchisee is obliged to operate a snack bar in the rented property according to a specific franchise formula, then the franchisor may not establish a competing company directly next to it according to the same formula. Not even if the lessor/franchisor leaves the exploitation to another franchisee.

Conclusion

Good and clear agreements between landlords and tenants about the arrival of competitors in the neighborhood over which the landlord has influence promote the certainty and continuity of successful cooperation. It is therefore necessary to carefully test the agreements against their permissibility, for example on the basis of the rules of competition law.

Ludwig & Van Dam franchise attorneys, franchise legal advice