Austria - Franchise and Distribution newsletter #26

Delivery problems of the supplier/franchisor due to COVID restrictions

"Objective delay"

If a supplier cannot provide his services or deliver his goods without being at fault (e.g. due to official orders, closed borders, failures of his own suppliers, sick leave), this constitutes a so-called "objective delay" (“objektiver Verzug”).

In this case, the creditor of the service (i.e. the franchisee) may withdraw from the contract by setting a reasonable deadline. The creditor can only claim damages (including loss of profit) if the delay in performance was culpably caused by the supplier, i.e. if the supplier can be blamed for it. However, interest on arrears shall be due in any case in the case of monetary claims.

These rules not only affect the usual supplier-customer relationships but can also be applied in the relationship between franchisor/importer and franchisee/authorized distributor.

Of course, all this applies only if the contract does not provide otherwise. With regard to COVID, for example, force majeure clauses in particular can limit the right of withdrawal despite an objective delay.

Duty to warn

If a contractual partner cannot (or can no longer) provide certain goods or services, he must inform his business partners in order not to expose himself to possible claims for damages. This also applies to franchisors vis-à-vis their franchise partners. Again, this only applies if the contract does not provide otherwise.

Reduction of the franchise fee

If the franchisor is no longer able to provide its contractually promised services to the franchisee for a longer period of time, the franchisee may be entitled to a reduction of the franchise fee and, in the event of a prolonged delay in performance, may even be entitled to terminate the franchise agreement by setting a reasonable deadline. It is largely irrelevant that the franchisor itself may not be at fault. However, deviating clauses in the franchise agreement may apply.

What to do

Franchisees as well as franchisors are well advised to have their franchise agreement as well as the contracts with system-important suppliers checked to be able to correctly evaluate their own legal position. To avoid unnecessary legal disputes, it is advisable to try to reach amicable solutions wherever possible.