What is franchising?
Everyone knows more or less what is meant by franchising. Usually it concerns a specific formula, such as the well-known fast-food chains, but also supermarkets and garden centres. There are always two parties involved, the franchisee and the franchisor. The franchisor is the initiator – they have developed the successful formula, which they make available to franchisees for a fee. Sometimes the franchisor also lets the (retail) space to the franchisee.
In turn, the franchisee is obliged to conduct their business in a certain way. For example, to comply with rules regarding the interior design of the shop. But also how the products are prepared or assembled. These rules/agreements are laid down in a franchise agreement and other agreements such as the lease, general terms and possibly other agreements.
The lease is linked to the franchise…
In some cases, so-called ‘coupled clauses’ are included in the agreements. This means that the lease is linked or integrated into the franchise agreement. There are risks involved – the end of the franchise agreement often also means the end of the lease. However, different rules apply to the termination of the lease, especially when it comes to retail space, in which case the lease cannot be terminated without a valid reason.
What happens if the franchise agreement is terminated?
If the rules of the contract are not followed, the franchisor may decide to terminate the agreement prematurely, or the franchisor may terminate the agreement. Because of this link, the lease also ends, even if the franchisee continues to pay the rent. Whether this is the case depends on how the parties treated the link while negotiating the franchise agreement.
If no protest was made against this link between the franchise and the lease, the franchisee cannot successfully invoke a right to tenancy. As a result, the franchisee may not only find himself without a franchise agreement, but also without business premises. The franchisee will therefore have to vacate the leased space.
Right to tenancy
It is common knowledge that franchise agreements can contain many ‘coercive clauses’ which prevent the franchisee from acting independently as an entrepreneur. This may even go so far as to terminate the lease at the same time as the franchise agreement. The reverse may also be true: if the termination of the agreement were to be attributed to the franchisor, it is conceivable that the franchisee could invoke a right to tenancy, resulting in lengthy proceedings. It is therefore important to draw up a sound franchise agreement.
10 tips for drawing up a franchise agreement
- Know who you are contracting with! Get an excerpt from the Chamber of Commerce – is the person who signs also authorised to contract on behalf of this party?
- During the negotiations, check whether a link between the lease and the franchise is desirable, depending on your position!
- Find out which rent regime applies: different rules apply to office space than to retail space! Ask for advice from a tenancy lawyer…
- Make agreements about which general terms and conditions apply! Your own or that of the other party?
- Stipulate security where necessary, such as a deposit or bank guarantee.
- Include a good, realistic penalty clause if the parties fail to comply with the agreement.
- Check what happens in case of disputes: will it go to arbitration or the regular courts? That can sometimes make quite a difference!
- Make clear agreements about premature termination of the agreement. These agreements often do not offer a break option.
- Talk to fellow franchisees in the chain to find out what is going on. Also as franchisor, it may be worthwhile to bring the new contracting party into contact with other franchisees in advance.
- Consider carefully before terminating the agreement. TEN can help you with this, both in drawing up and in terminating these agreements. Whichever side of the table you sit at. Our corporate lawyers will be happy to assist you.
Do you have any further questions after reading the above? We would be happy to answer them, just get in touch!