A car rental franchisor communicated to its franchisees its intention not to automatically renew its franchise agreements at the expiry date previously agreed between the parties.
One franchisee challenged the franchisor and applied for an injunction, requiring the suspension of the termination and for an order confirming that the franchise agreement would continue.
The franchisee alleged that the termination was unlawful as:
- it was an abuse of economic dependence pursuant to Article 9 of Law 192/1998 concerning sub-supply, which was applicable to the franchise agreement by analogy; and
- it was contrary to good faith and to the general rules of professional fairness.
On December 19 2014 the Court of Rome rejected the request of the franchisee, since the franchise agreement expressly provided that the agreement would be automatically renewed unless terminated by either party with six months' notice. Therefore, the termination could not be considered an abuse of economic dependence.
Despite this decision, the franchisee continued to use the distinctive signs of the franchisor and refused to vacate the sub-let franchise premises.
The franchisor applied for a precautionary injunction to obtain the vacation of the premises.
On January 15 2015 the Court of Milan (after rejecting the franchisee's objection that some requests were also under examination by the Court of Rome where the franchisee had filed a claim), accepted the request of the franchisor and restricted any further usage by the franchisee of the franchisor's distinctive signs and ordered the immediate vacation of the sub-let premises.
The court held that:
- the vacation was lawful in order to avoid irreparable damage as a result of the premises being unavailable;
- the termination had been lawfully communicated by the franchisor; and
- the behaviour of the franchisee caused damage which could not be repaired through compensation if the franchisor had to await the conclusion of ordinary proceedings.
It is common in franchise relationships for the franchisor to execute a property lease agreement or an agreement for the lease of a business concern for the premises in which the franchising activity will take place and for a sub-lease to be arranged for such premises.
This ensures that, on termination of the franchise agreement, the premises will be available for the franchisor's own use or that of new franchisees.
However, the franchisee can refuse to vacate the premises and claim for unlawful termination of the franchise agreement. This can cause serious and irreparable damage to the franchisor, since action to recover the premises can take several years.
This decision is important as it confirms that a precautionary injunction can be obtained to have premises vacated, which is considered in the same way as a credit right. This remedy may be useful for franchisors to accelerate the recovery of their premises.
To obtain a precautionary injunction, the franchise agreement must have been terminated in compliance with the law and with the terms of the agreement.
For further information on this topic please contact Marco De Leo or Beatrice Masi at Rinaldi e Associati by telephone (+39 02 7600 8860) or email ([email protected] or [email protected]). The Rinaldi e Associati website can be accessed at www.rinaldilawf.com