In a decision dated May 15, 2024[1], the French Supreme Court (Cour de cassation) confirms that transfers of shares in the franchisor’s company and changes in its management do not require the franchisee’s agreement, unless otherwise stipulated.
A franchisee argued that a franchise agreement was signed in the person of the franchisor, and that his contracts could not therefore be transferred without his agreement.
However, the Court of Cassation ruled that “if the franchise contract is concluded in consideration of the franchisor’s person, the transfer of all the franchisor’s shares and the changes in its directors, which do not imply any change in the legal entity in consideration of which the franchisee has undertaken and do not entail any transfer of the franchise contract, do not require the prior agreement of the franchisees, unless otherwise stipulated“.
The indivisibility of franchise and lease management contracts
Another interesting aspect of this same ruling concerns the link between franchise and lease-management contracts.
After indicating that the two lease-management contracts would not be renewed, the franchisor simultaneously notified the franchisee of the end of the franchise contracts.
This position taken by the franchisor was approved by the courts. The French Supreme Court (Cour de Cassation) ruled that it was clear from the facts of the case that the contracts “pursued the same economic operation, and that the disappearance of the first did not allow the second to continue in force“. As a result of the indivisibility of the lease management and franchise contracts, the termination of one leads to the invalidity of the other.
This makes this decision even more interesting for franchisors.
About the Intuitu Personae principle
The franchise contract is concluded “intuitu personae“, in consideration of the franchisee’s person. The franchisee will be the brand’s ambassador in his or her outlet.
This notion also implies the franchisor’s ability to validate all shareholders involved in the franchisee’s company.
The franchisor must be informed of any change in shareholding, or any planned sale by the franchisee, and generally enjoys :
– a right of pre-emption ;
– a right of approval: the franchisor is not obliged to continue the contract with persons he has not approved.
This intuitu personae is not reciprocal: the franchisor undertakes to provide the franchisee with a brand name and know-how.
This commitment remains unchanged regardless of changes in the franchisor’s entity.
[1] Com. 15 mai 2024, FS-B, n° 22-20.747