Authors: Rob Klein and Thijs van Tilburg
On 1 January 2021, the new Dutch Franchise Act entered into force. From this date onwards, new franchise agreements concluded with franchisees operating in the Netherlands must comply with the mandatory provisions of the Dutch Franchise Act. The Dutch Franchise Act has far-reaching effects on franchise practices. The Dutch Franchise Act intends to provide more certainty on key topics which were previously covered by open norms and general principles of Dutch contract law. Existing franchise agreements are subject to a transitional period of two years with regard to specific provisions such as the right of consent, non-competition and goodwill. As of 1 January 2023, all franchise agreements must fully comply with the Dutch Franchise Act.
The new legislation aims to level the playing field, primarily by strengthening the position of franchisee in order to provide more balance in the relationship between the franchisor and the franchisee. The Dutch Franchise Act introduces the basic principle that parties must behave towards each other as a ‘good franchisor’ and a ‘good franchisee’. This principle covers not only the contractual relationship, but the franchise relationship as such (including the pre- and post-contractual phase). Parties must behave reasonably and carefully towards each other.
Below we have included an overview of key topics of the Dutch Franchise Act.
Pre-contractual disclosure obligations
The franchisor has far-reaching disclosure obligations in the pre-contractual phase. This includes a general obligation for the franchisor to inform the franchisee on any information that is or could reasonably be relevant for the conclusion of a franchise agreement.
Stand-still period
The abovementioned information has to be provided to the franchisee at least 4 weeks prior to the conclusion of the franchise agreement. During the stand-still period, the franchisee shall review all relevant information and assess its obligations and risks. Furthermore, during the stand-still period, the terms of the agreement may not be changed to the detriment of the franchisee and parties may not enter into the franchise agreement or any other related agreement.
Disclosure obligations during the term of the franchise agreement
During the term of the franchise agreement, the franchisor needs to regularly provide information on topics such as required investments, amendments to the franchise agreement, franchisor’s intended use of so-called derived formulas and any other information deemed relevant.
Assistance and support
The Franchisor must provide assistance and commercial and technical support that may be reasonably expected by the franchisee.
Right of consent
If the franchisor intends to change the franchise formula using a provision contained in the franchise agreement or intends to have a derived formula operated directly or through third parties without amending the franchise agreement, and the franchisor requires an investment, fee, surcharge or other financial contribution from the franchisee or can reasonably foresee that the implementation will lead to costs or loss of turnover that exceeds the threshold as agreed between the parties, the franchisor may seek prior written consent of the franchisee. The franchisor must then seek prior written consent from i) a majority of the franchisees or ii) each of the franchisees established that are affected by the intention of the plan.
Goodwill and non-competition
The franchisor must include a provision in the franchise agreement relating to accrued goodwill in the franchisee’s enterprise. It should be clear on how the value of goodwill is determined and how it is remunerated. Furthermore, the non-compete clause must not exceed one year after the end of the franchise relationship and must be limited to the geographic area in which the franchisee has operated.
Mandatory provisions
Another important issue is the mandatory nature of the Dutch Franchise Act for franchisees operating in the Netherlands. The franchisor cannot derogate from the Dutch Franchise Act in a franchise agreement insofar the franchisee is operating in the Netherlands, even if the franchise agreement is governed by foreign laws. Any detrimented derogation is null and void, irrespective of the law governing the franchise agreement. For franchise agreements with franchisees outside the Netherlands it is possible to explicitly deviate from the Dutch Franchise Act, even when the franchise agreement is governed by Dutch laws.
For further information please contact Nysingh advocaten - notarissen, Rob Klein or Thijs van Tilburg.
