Provisions of chapter 54 of the Civil Code of Russian Federation related to commercial concession (franchising) agreement were changed materially

In accordance with changes made a commercial concession (franchising) agreement may provide for additional restrictions of the users rights thereunder.

In particular it is permitted to include in the agreement the user’s obligation to sale, including re-sale, manufactured and/or purchased goods, perform works or render services using exclusive rights belonging to the right holder at prices established by the right holder as well as the user’s obligation to refrain from sale of similar goods, performance of similar works or rendering of similar services using trademarks or trade names of other right holders.

Earlier such restriction was considered null and void and may not be used by the right holder.

In addition currently the Civil Code of the Russian Federation provides for including into franchising agreement the user’s obligation to sale goods, perform works or render services solely within the limits of specific territory which had previously trigged questions and generated ambiguous practice.  

Material changes were introduced in the provisions on the user’s right to enter into franchising agreement for a new term. We remind you that at the moment, before enactment of the recent amendments, the rights holder is entitled to refuse entering into commercial concession agreement for a new term provided that within three years from the expiry date of such agreement he would not enter into similar commercial concession agreement or agree to enter into similar commercial sub-concession agreement operating on the same territory as the expired agreement. If the right holder wishes to vest somebody with the same rights as those vested to the user under the expired agreement prior to the expiry of a three year term, he is obliged to offer the user to conclude a new agreement or reimburse losses incurred by the user. Moreover, terms and conditions of a new agreement shall not be less favorable for the user as those of the expired agreement.

Pursuant to the recent amendments the period within which the right holder, who refused the user to enter into franchise agreement for a new term, should refrain from entering into a similar franchise agreement with the same rights and on the same conditions was reduced to one year. In the event of breach of such provision the user is entitled to claim at its discretion in court either transfer of rights and obligations under the concluded agreement to the user and reimbursement of losses incurred due to the refusal to renew the franchise agreement with it, or only reimbursement of such losses.

Besides, henceforth it is permitted to repudiate the franchise agreement by any party thereto prior to the expiry of a six month term established by law for notification of the other party on the said repudiation, if the agreement provides for its termination by means of payment of a cancellation compensation subject to at least thirty days prior notification of the other party.

The foregoing amendments shall become effective from 21 October 2011.