A professionally drafted franchise agreement will include grounds to either
- terminate the contract, or
- refuse to extend the contract
When one party seeks to activate a termination clause it’s not unusual for the other party to dispute the grounds relied on to do so. As with any commercial contract the clarity with which the franchise agreement has been drafted will have a significant impact on how the provisions are interpreted. We look at how courts interpret these types of franchise agreement clauses below.
Winkworth Franchising Ltd v Goble [2023]
In this case involving the well-known brand of estate agents, the franchisor (Winkworth Franchising Ltd) sought the High Court’s approval for its refusal to extend certain franchise agreements it had entered into with the defendant, Goble.
Franchisor and franchisee had entered into five 20-year franchise agreements which included the right to extend them twice by another 10 years. The agreement included a provision however that the franchisor had the right to refuse to extend the agreements under specific grounds. These included where the franchisee breached the agreement. In this case, when the franchisee sought to renew the agreements, the franchisor refused on the grounds that the franchisee had breached the agreement by failing to provide their annual accounts, despite these being requested multiple times.
The franchisee disputed this and claimed that the reasons given for refusing to extend the franchise agreements were not a material enough breach to refuse the renewal of the agreement. They argued that the requests to provide accounts were unclear and there was an understanding that there was no time frame for providing the accounts.
Decision
The court held in favour of the franchisor, granting the refusal to extend the franchise and approving Winkworth’s notice to terminate the agreement. The judge found that there was no legal basis on which the terms of the agreement could be ignored. The parties had both agreed to the terms of the agreement. Nowhere in the contract did it state that the breach had to be a “material” breach in order for the franchisee to exercise the right to refuse renewal.
The judge refused to imply into the franchise agreement a requirement that any breach had to be material as it was not written into the agreement. In addition to this, the court found that the franchisor’s requests for the annual accounts had been sufficiently clear and the argument that there was an understanding that there was no specific time frame for providing the accounts was irrelevant as the franchisee failed to provide such accounts for over a year. The breach was therefore found to be sufficient to refuse the renewal of the franchise.
Comment
The case illustrates that – as with any commercial contract dispute – courts remain averse to assume or imply terms into an agreement which have not actually been written into the agreement. Parties should therefore always remain aware of the terms of their agreements and how they are written. When there is a dispute about a franchise agreement judges are not entitled to rewrite an agreement so agreements should be carefully drafted in a manner both parties understand and are content with. Parties may wish to include provisions to cover events to allow the refusal of renewal or allow termination of an agreement and both parties should remain aware of such possibilities.
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At Nath Solicitors, we specialise in commercial contracts. If you need advice, contact us on 0203 983 8278 or get in touch with the firm online.
