Buying a franchise: Agree terms for a forced shutdown

An order from the authorities, a serious supply disruption or another exceptional event could make it impossible to keep your future franchise open. Yet payments and other contractual obligations may continue. Before joining a franchise network in Denmark, you should therefore examine how the agreement allocates the risk of an involuntary shutdown. What matters is not simply whether the contract mentions force majeure, but what the clause actually means for your business.

Understand what force majeure protects against

Force majeure refers to exceptional obstacles beyond a party’s control which, under certain conditions, may relieve that party of liability for failing to fulfil its obligations. It is not a general right to put the entire relationship on hold because running the business becomes difficult or more expensive.

Denmark has no specific franchise legislation. Franchise agreements are governed by, among other things, the Danish Contracts Act and general principles of contract law and the law of obligations. Depending on the relationship, legislation such as the Danish Competition Act, Sale of Goods Act and Business Lease Act may also apply. There is also no specific mandatory disclosure document or registration scheme for franchise agreements.

If the agreement does not address force majeure, general principles of the law of obligations may be relevant. However, this does not mean that every external event releases you from your obligations. The assessment depends on factors including the obstacle, the particular obligation and how the agreement allocates risk.

Do not assume that a loss of revenue in itself removes your obligation to pay. A shutdown and payment difficulties are not necessarily the same legal obstacle. Ask a solicitor familiar with Danish law to assess the clause in the context of the particular franchise you intend to buy.

Review the events covered and the evidence required

Start by checking which events the clause covers. A list including war, natural disasters and government intervention may look reassuring, but those words alone do not tell you when the clause can be invoked.

In particular, clarify:

• Must operations be impossible, or is a significant obstacle enough?
• Does the clause cover both the franchisor’s and the franchisee’s obligations?
• What happens if a mandatory supplier or the network’s central IT system fails?
• Are events that were known or foreseeable when the agreement was signed excluded?
• Must there be a direct link between the event and the obligation that cannot be fulfilled?

Distinguish between an outright ban on opening and a situation in which customers simply stay away. Similarly, a technical failure is not automatically force majeure if routine maintenance could have prevented it.

Check the procedure too. The contract may require prompt written notice, supporting evidence and regular updates. Clarify who must receive the notice, what it must contain and the consequences of giving notice late. The procedure should be workable even while the business is dealing with an emergency.

Agree the financial arrangements during a shutdown

The most important negotiation often concerns which obligations continue. A clause may relieve you of liability for damages without also giving you the right to a waiver of fees. Read the force majeure clause alongside the payment terms and the provisions on breach of contract.

Ask for a written breakdown of how each payment will be treated during a shutdown covered by the clause. It should distinguish between turnover-based fees, fixed monthly payments, minimum payments and charges for specific services.

A turnover-based fee may fall as sales decline, but an agreed minimum may still be payable. If the network’s central system is unavailable, the agreement should also explain how charges for that system and any alternative solutions will be handled.

Negotiate clearly defined arrangements, such as:

• A temporary reduction or suspension of specified fixed payments.
• Deferred payments with a realistic repayment schedule.
• Suspension of opening-hours requirements and performance targets that the obstacle makes impossible to meet.
• Allocation of necessary costs for temporary operating arrangements.

These are possible contractual terms, not automatic rights under Danish law governing franchises. Remember the difference between waiving and deferring a payment: a deferred bill will still need to be funded later. Ask your accountant to show the budget implications of both options.

Plan for reopening and a prolonged shutdown

A workable clause should also explain how normal operations will resume. Agree who will assess whether the obstacle has been removed, what evidence is required and whether a practical period is allowed for reopening. Ordering stock, arranging staffing and getting technical systems ready can take time, even after an official order has been lifted.

Then examine what happens if the shutdown continues for an extended period. Must the parties meet and renegotiate? Can either party terminate the agreement after a specified period? What happens to sums already paid and payments still outstanding? Avoid a vague arrangement that simply leaves both parties to work things out later.

Finally, test the agreement against one specific scenario: your outlet cannot open, while the rest of the franchise network is operating normally. Can you tell from the wording who must do what, and who must pay for it?

Practical takeaway: Before signing, make sure the events covered, notice requirements, payment consequences and reopening arrangements are set out together. A force majeure heading is not, in itself, a plan for surviving a shutdown.