On 30 June 2020, the Dutch Senate agreed unanimously on the Dutch Franchise Act. This means that the Franchise Act will enter into force on 1 January 2021. For franchise agreements concluded before that date, a transition period of two years applies to comply with the statutory requirements on goodwill/non-compete and on prior consent (see below). The Dutch Franchise Act will be adopted in Book 7 of the Dutch Civil Code.
Do you want to know whether the Franchise Act is applicable to your franchise agreement? We developed a Tool to quickly check whether the Franchise Act is applicable to your franchise agreement. You can access the Tool via link below.
Kennedy Van der Laan’s franchise experts are more than happy to answer any questions you might have regarding the Dutch Franchise Act.
Short summary provisions Franchise Act
The Franchise Act includes provisions on the following topics:
- 'Good franchisor' and ‘Good franchisee’
The franchisor and franchisee must behave as ‘good franchisor’ and ‘good franchisee’. What is expected and required from both parties, depends on several factors, such as the type of franchise formula, the industry and the size of the franchise chain. - Disclosure in the pre-contractual phase
The franchisor and franchisee must inform each other about their financial positions at least four weeks prior to concluding the franchise agreement. Further, the franchisor must provide all information that can be reasonably be expected to be of importance for the franchisee in relation to concluding the franchise agreement, including the franchise agreement itself, the information regarding the required financial contributions and investments by the franchisee, the way and frequency in which parties consult each other and financial data regarding the franchise location that is to be operated by the franchisee. However, the latter is no obligation to provide a turnover forecast. - Franchisee’s research duty
The franchisee must, within the bounds of reasonableness and fairness, take the necessary requirements to avoid that he concludes the franchise agreement under the influence of misinterpretations. This means, for example, that the franchisee must properly study the information he received from the franchisor and, if necessary, must timely consult expert support. - Disclosure obligations during the term of the franchise agreement
During the term of the franchise agreement, the franchisor must timely provide information on, for example, intended amendments to the franchise agreement, required investments, etcetera. The information must be provided in a way that after consulting the information, the information remains unchanged and available at a later time. Further, parties must consult each other at least once per year. Further rules regarding the nature, content and way of provision of information can be designated by governmental decree. - Cooling-off period
The franchisor provides the information (see disclosure obligations) at least four weeks prior to conclusion of the franchise agreement. Within the term of four weeks, the franchisor cannot conclude the franchise agreement with the prospect-franchisee, may not change the policy and design of the franchise agreement and may not require the prospect-franchisee to make any investments or payments. - Technical and commercial support
The franchisor must provide the franchisee with the technical and commercial support that can be reasonably be expected from him in relation to the nature and scope of the franchise formula. - Goodwill
The franchise agreement must make clear how it will be determined whether goodwill exists in the franchisee's business and, if so, the extent of that goodwill and the extent to which it is attributable to the franchisor. If, on termination of the franchise agreement, the franchisor takes over the relevant franchise company in order to continue it independently or transfer it to a third party with whom the franchisor enters into a new franchise agreement, the franchise agreement must provide how the goodwill that can reasonably be attributed is reimbursed on termination. - Non-compete clause
A non-compete clause is only permissible if this is recorded in writing, essential for the protection of transferred knowhow of the franchiser formula, is limited to one year after the termination of the franchise agreement and lastly, if the geographical scope of the area is not broader than the area within which the franchisee has operated its franchise business in relation to the franchise agreement. - Consultation and prior consent requirement
The franchisor requires the prior consent of a majority of the franchisees, or of each of the franchisees affected by the change in order to make changes to the franchise formula or to exploit directly (or via third parties) a “derived franchise concept”. This consent requirement applies if:- the franchisor requires investments from the franchisee in connection with the proposed changes.
- the amendment of the franchise agreement involves an obligation to pay, store or another financial contribution to the detriment of the franchisee, or if
- the franchisor requires the franchisee to bear other types of costs or if it can reasonably be expected that the intended change will lead to a loss of turnover of the franchise company of the franchisee.
A threshold may be included in the franchise agreement to avoid the need for prior consent. The threshold must not be too high.
Read our articles on the Franchise Act here.
