New Legislation on Right to Revoke Franchise Agreements

Content
Form
Exercise of the Right
Effects

According to the German Consumer Credit Law, a consumer is entitled to revoke a franchising contract if (i) he is to establish an independent business upon the conclusion of the contract, and (ii) he is obliged to accept repeated deliveries of goods.

These conditions are met in many franchise agreements, for example, when a former employee becomes independent and starts his own franchise business. If a franchise agreement is then concluded which includes an obligation to take deliveries of goods, the Consumer Credit Law applies to this franchisee. The period of notice by which such a franchisee can revoke this agreement depends on whether the franchisee has been properly instructed as to his right of revocation according to Section 7 of the law. The requirements regarding instruction on the right of revocation are extremely strict. The instruction must comply with certain formal requirements and contain details concerning:

• the notice periods for revocation;
  
  
• the commencement of these periods;
  
  
• the manner and form of the revocation by the franchisee; and
  
  
• the name and address of the person to whom the revocation must be notified.

If the franchisee has been properly instructed, he has the right of revocation for a two-week period following the conclusion of the agreement only; later revocation is ineffective. If he has been incorrectly instructed, the period during which he is entitled to revoke is extended to one year after the conclusion of the agreement. In practice, instruction is often incorrect. Changes to the regime have been effected by amendments to Section 7 of the Consumer Credit Law, which came into force in October 2000.

Content

Correct instruction must specify the period within which revocation is possible, and must refer to the commencement of this period. With effect from October 10 2000, the period during which revocation is possible has been extended from one to two weeks. This period commences on the date on which a clearly designed and printed written instruction is issued to the franchisee.

The instruction must state that if the revocation is sent within the specified time period it will be considered as within the deadline; actual receipt is not necessary for compliance. It must also state that the revocation can be made in writing or another permanent form of data transmission, or by returning the goods received. Finally, a correct instruction must include the name and address of the party to whom the revocation is to be addressed.

Form

The revocation instruction must be contained in a special document, clearly designed and printed. The new legislation (Section 7 of the Consumer Credit Law together with Section 361a of the Civil Code) has accounted for developments in legal communications and accordingly permits that any form of permanent communication of the revocation instruction will suffice. The revocation instruction may thus be sent by e-mail or CD-ROM (compact disk read-only memory). The crucial aspect is the franchisee's receipt of the instruction. Merely making the revocation instruction available on the franchisor's web site is not sufficient, since this can easily be altered: the franchisee must receive a revocation instruction whose content cannot be changed. A notice that the consumer can download the revocation instruction is also inadequate. If the franchise agreement is concluded by a married couple or by a civil law partnership, each person must be instructed on the right of revocation by means of a separate document.

The revocation instruction also requires a separate signature. According to the new wording of Section 7, it is sufficient if the revocation instruction is signed by means of a qualified electronic signature. The franchisor bears the onus of proof as to the issue and signature of the revocation instruction; retention of a copy of the signed revocation instruction will suffice.

Exercise of the Right

No grounds for revocation need to be given, and it is no longer necessary to give notice in writing. Just as in the case of the revocation instruction, the revocation itself can now be made by e-mail or CD-ROM. The return of goods delivered within the two-week notice period is also adequate.

Effects

If the revocation instruction has not been provided or has been provided incorrectly, the franchisee can revoke the declaration of intent made at the conclusion of the franchise agreement within a period of one year. The revocation renders the franchise agreement void from the start, and renders any performance under it reversible.

For further information on this topic please contact Karsten Metzlaff or Karl Rauser at Nörr Stiefenhofer Lutz by telephone (+49 30 20 94 20 00) or by fax (+49 30 20 94 20 94) or by e-mail ([email protected] or [email protected]).