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A franchisor (Leen Bakker) entered into a franchise agreement with a franchisee in 1995. Pursuant to that franchise agreement, the franchisee operates a home furnishings store under the Leen Bakker franchise formula. A termination clause in the franchise agreement provides, inter alia, that termination takes place with a term of 13 months, and that the franchisor may only terminate the franchise agreement if it cannot reasonably be required to continue the agreement.

Leen Bakker informed its franchisees mid-2020 that it was going to discontinue the franchise formula. Subsequently, Leen Bakker terminated the franchise agreement with this franchisee by letter for business economic reasons, taking into account a term of three years, which term is thus much longer than the contractual notice period. Leen Bakker also made an offer to franchisee to take over the store for a compensation of €40,000 in goodwill, take over the inventory at book value and take over the trading stock at cost price and book value.

According to the franchisee, the termination would have been without legal effect, or at least the franchisor should have paid her compensation (for damages). The subdistrict court rejected the franchisee’s claims. The Den Bosch Court of Appeal set aside the subdistrict court’s judgment. According to the Court, Leen Bakker had validly terminated the franchise agreement because it had sufficient reason to terminate the franchise agreement. However, Leen Bakker was obliged to pay (compensation) to the franchisee.

The Dutch Supreme Court decided in its ruling of 29 November 2024 that a continuing performance contract that provides for a regulation of termination is in principle terminable by virtue of that regulation. However, if the law and what has been agreed between the parties leave room for this, the requirements of reasonableness and fairness in connection with the nature and content of the contract and the circumstances of the case pursuant to Section 6:248 (1) of the Dutch Civil Code may imply that further requirements are imposed on the termination. The requirements of reasonableness and fairness may imply that termination is only possible if a sufficiently serious ground exists for the termination. They may also imply that a certain notice period must be observed or that the termination must be accompanied by an offer to pay compensation or damages. Furthermore, a reliance on a power arising from the law or a contract to terminate the long-term contract pursuant to Article 6:248(2) of the Dutch Civil Code may be unacceptable according to the standards of reasonableness and fairness.

If the requirements of reasonableness and fairness imply that a termination must be accompanied by an offer to pay compensation (for damages), the absence of such an offer does not, as a rule, invalidate the termination. However, the circumstance that notice of termination was given without offering adequate compensation may be taken into account in determining the amount of compensation to be paid. The circumstances of the case may imply that a termination without the simultaneous offer of adequate compensation is unacceptable according to standards of reasonableness and fairness. In such a case, the termination is not valid.

Even if the terminating party has used a longer than the contractual notice period, there may be an entitlement to compensation for damages. To what extent the scope of this entitlement is affected by the fact that the terminating party has used a longer than the contractual notice period, thereby giving the other party a longer opportunity to adjust the business operations to the situation after termination, depends on the circumstances of the case.

No opinion is yet given in this judgment on the goodwill compensation introduced in the Dutch Franchise Act as of January 1, 2021, but this is likely to be addressed in the damages state proceedings, in which the amount of damages will be determined.