Need to Notify
Content and Form of Notification
Up until December 2001, the Consumer Credit Act granted the franchisee the right to revoke a franchise agreement if this obliged the franchisee to buy goods from the franchisor on a regular basis. While the act was abolished at the end of 2001, the respective consumer protection provisions were inserted into the German Civil Code. Therefore, when concluding a franchise agreement the franchisor must still inform the franchisee of his right to revoke the franchise agreement.
As the form and content of this obligation have proved problematic in the past, in mid-2002 the German legislature published a general notification model in relation to the franchisee's right of revocation. The legislature stated that if a franchisor uses this model it will be in compliance with the relevant statutory requirements (Federal Law Gazette 2002, Part 1, 54, p 2959).
The Civil Code provides that a franchisee is entitled to revoke the franchise agreement, and must be notified of this right by the franchisor, if the agreement obliges the franchisee to purchase goods from the franchisor on a continuous basis (Section 505). Even without an explicit obligation to purchase, an implicit obligation can derive from the franchisee's duty to promote the distribution of the product, breach of which often results in termination of the franchise contract or claims for damages by the franchisor. The general requirements for notification of the franchisee's right of revocation are set out in Section 355 of the Civil Code.
Content and Form of Notification
The requirements on how notification should be given are extremely strict. The notification must specify the period within which the right of revocation may be exercised, and explain when this period begins to run. In most cases this period is two weeks, commencing from the day after clear and comprehensible written notification is issued to the franchisee. In addition, the notification must state that the franchisee need only send notice of his intention to revoke the franchise agreement within this period in order to meet the deadline. The notification must also state that revocation can be made in writing or through other permanent form of data transmission (eg, fax or email), or simply by returning the goods received. Finally, a valid notification must include the name and address of the party to whom the revocation must be addressed.
In mid-2002 the legislature added that the revocation period will stand at one month if the franchisee is not notified of his right of revocation until after the franchise agreement has been concluded.
Up until November 2002 the franchisee had a period of one year following the conclusion of the franchise agreement in which to exercise his right of revocation in cases where he was incorrectly informed of this right. However, from November 2002 onwards the franchisee will enjoy a perpetual right of revocation if the franchisor's notification was incorrect. Once the right of revocation is exercised the franchise agreement becomes void from the outset, and any performance under it is 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 email ([email protected] or [email protected]).
Endnotes
(1) Case 161/84, ECR 1986, 353 (January 28 1986).