The High Court recently heard the case of Winkworth Franchising Ltd v Goble in which it considered whether a franchisor’s opposition to the extension of a franchise agreement was valid.

In 2002, Winkworth (the claimant) entered into a number of franchise agreements with Goble (the defendant) relating to the sale and letting of property in London. Goble was permitted to extend the initial 20-year duration of these agreements twice by a period 10 years on each occasion, provided that Winkworth did not oppose such an extension either on specific grounds and/or due to breach of any contractual obligations.

Pursuant to the terms of the agreements, Goble was required to provide copies of its accounts to Winkworth. Goble failed to provide copies of its 2020 accounts, both by the stipulated deadline and following further requests by Winkworth.

In 2022, Goble provided notice to Winkworth that he wished to extend the term of the agreements; Winkworth issued a counter notice on the basis that Goble had breached a contractual term of the agreements by failing to provide both the required accounts, as well as rent receipts relating to leased properties. Goble eventually provided the accounts in April 2022; however, in October 2022, Winkworth summarily terminated the franchise agreements.

In response, Goble argued that Winkworth could not refuse the request to extend the franchise agreements on the basis that:

• Goble’s failure to provide the accounts was not a sufficiently material breach for Winkworth to refuse the requested extension;
• Winkworth’s requests for information were not clear;
• no rent receipts existed and, therefore, could not be provided;
• Winkworth was estopped from refusing as an understanding had arisen between the parties that there was no specific time frame for the provision of accounts; and, finally
• Winkworth was unfairly trying to find fault so that it could take over the franchises or enter into new agreements on different terms.

The claim before the High Court was one for summary judgment, for which the Court was required to consider whether Winkworth had a realistic prospect of success. The issue before the court was whether Winkworth’s refusal to extend the agreements was valid on the basis that Goble had failed to comply with its terms. Ultimately, the Court found in favour of Winkworth (and a declaration that it had validly served a counter notice to terminate the agreement in October 2022 was granted) on the basis that:

• as the agreements contained express provisions requiring the provision of accounts by Goble, the Court could not impose an additional requirement of materiality (and, therefore, Goble’s failure to provide the accounts was considered a material breach of a specific term of the agreements);
• Winkworth’s numerous requests for provision of the accounts were sufficiently clear;
• as no rent receipts existed, Goble was not required to provide these documents; and
• whilst Goble had provided the 2020 accounts some 13 months late, the assumption that an understanding had arising between the parties regarding the time frame for provision of the accounts was not relevant to whether or not the agreement had been breached.

We often see extension rights that are conditional upon compliance with the terms of the Franchise Agreement but this case clearly shows that the courts will not readily imply materiality where it is not expressly provided for in the contract. It therefore serves as a word of warning to all Franchisees to check that they are complying with the terms of the Franchise Agreement before exercising any contractual right that is conditional upon such compliance.

Franchisees should seek to ensure that the conditions precedent to their renewal rights which refer to the Franchisee not being in breach make it clear that any such breach must be both (a) material and (b) ongoing at the date that notice to renew is given. Separately, when approaching the date for exercise of a renewal right they should ensure that they are not in breach or that any unresolved issues are addressed before the renewal right is exercised.

As a matter of good practice (and to avoid disputes like this from arising), Franchisors should notify Franchisees if they become aware of any act or omission by the Franchisee that is in breach of the Franchise Agreement and that may entitle the Franchisor to veto an extension. They may go further and set out in the notice that such breach will (if not remedied) prevent the Franchisee from exercising its extension right.