Approval

clause

Franchise agreements

are concluded intuitu personae, that is to say in consideration of the person of the franchisee, whose qualities must allow a good exploitation of the brand and the know-how of the franchisor.

The approval clauses allow the franchisor, if the franchisee wishes to assign its contract (for example directly in the context of a transfer of business, or indirectly in the context of the transfer of control of the franchisee company), to check the qualities of the transferee and accept the completion of the transfer or refuse it.

The approval clauses thus allow the franchisor to protect its know-how and its brand by choosing the people who can access and exploit them.

The case law recognizes the validity of these clauses, and considers them to be “characteristic of the intuitu personae of the franchise contract” (CA Angers, December 19, 2006, Jurisdata No.2006-330903).

Unless otherwise stipulated in the approval clause, the franchisor has a discretionary right to approve the candidate submitted, and does not have to justify a priori the reasons for a refusal of approval, subject to the general theory of abuse of rights.

However, the judges of the fund have a right of ex post control. Refusal of approval must not degenerate into abuse (Cass. Com, November 3, 2014, No.02-17.919).

If the approval clause refers to objective criteria, the franchisor would be liable if it was demonstrated  that it refused the assignee’s approval when the latter met the objective criteria stipulated in the approval clause.

It is the responsibility of the franchisee to comply with the terms of the approval clause, and in particular the approval procedure stipulated. Otherwise,  the contract would be terminated at the fault of the franchisee, who will have to bear all the consequences by compensating the entire damage suffered by the franchisor.