Franchise vs. Terms under German law

4. Jan 2018 News

For the purpose of a uniform distribution system, and equal treatment of franchisees, franchisor companies generally use uniform franchise agreements, which contain general terms and conditions as defined in § 305 (1) sentence 1 BGB. Since these terms have not been negotiated vis-à-vis among the parties, the have to be qualified as general terms and conditions under German law. As such, they are subject to the so-called ‘AGB inspection’, i.e. judicial review of the unfair terms.

Recent interesting decisions:

The Federal Supreme Court (BGH XII ZR 1/17) ruled that automatic renewal clauses in contracts are null and void if it is not clear at the beginning of the contract when a party must submit notice of termination. This applies to all contracts, including franchise contracts. The Federal Court of Justice determined in this case that there was a significant uncertainty about the begin and end period of the contract in question, and this lack of sufficient notice on critical components rendered the contract void. The BGH stated that this lack of transparency on critical terms, namely the actual period or “life” of the contract significantly infringed on the Party’s right of termination to the contract.

Franchise contracts should therefore contain clear rules on the start of the contract as well as the end date, and any requirements or deadlines for notice of termination.

Also interesting is the AGB decision of BGH VII ZR 308/16:

The court determined that blanket penalty agreements are ineffective if only included as general terms and conditions of the publisher of a coupon block. In the view of the BGH, this is void because it is disproportionate to the breach of contract, unduly prejudicing the contractor in bad faith.

Under these circumstances, either a regulation tailored to the individual violations (which can be impractical due to the complexity and length), or a provision where the franchisor determines the amount of the fine upfront for such breaches, taking into account the individual circumstances, would be advisable.

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