Laws and Contracts
How are the legal aspects of franchising regulated?
The introduction of a European Franchise Law
A binding franchising code in Europe was first set up within the framework of the EC. Franchising terms previously defined in the ‘EC Block Exemption Regulation for Franchise Agreements’ were integrated into the Codes of Ethics of the European franchise associations and are referred to regularly by courts when dealing with franchise cases.
The original aim of the directive, which was valid for all franchise systems active in Europe, was to exempt systems with cross-border activities from the cartel ban stipulated in the EC Treaty. The courts in the different countries, however, increasingly used this regulation as a general guideline for franchise agreements. It still represents the basis for the contents of the majority of franchise agreements in Europe. Thus, it not only led to a uniform implementation of the cartel ban but also to a uniform appearance of franchising in Europe.
The ‘EC Block Exemption Regulation for Franchise Agreements’ was replaced by the ‘Vertical Agreements Block Exemption’ (VABE) in the middle of 2000 which – besides sole distribution, exclusive purchasing and selective purchasing – also included franchising. In April 2010, the European Commission then passed a new VABE together with a list of guidelines.
There are no specific franchise laws in most of the European countries. Many years of jurisdiction following the European Commission’s decrees were necessary before a sufficient level of legal security existed in these countries for the different franchise agreements.
The Franchise Agreement
To be able to join a franchise system, a franchise agreement must be concluded together with the franchisor which contains, in particular, the rights and obligations of both parties.
The contents of a franchise agreement are subject for the most part to private autonomy, i.e. the contractual parties are free to negotiate the contractual details. Generally, franchisors issue a draft contract and all annexes to the interested party which have already been drawn up and assessed by experts.
It is advisable that a specialist franchise lawyer checks the draft contract in detail and provides potential franchisees with legal advice to ensure that any legal loopholes are avoided and that the interests of the franchisee are taken into account in the final version of the contract.
The franchise agreement forms the basis for the long-term cooperation work between the franchisor and the franchisee and is seen, therefore, from a legal point of view as a continuing obligation.