After a failed attempt to give the Dutch Franchise Code, a selfregulation prepared by the industry, a statutory basis, a new draft bill was published on 12 December last.[1] See our previous blogs.[2]
Purpose of the bill
The bill aims to improve the balance in relationships between franchisors and franchisees. It entails rules for the pre-contractual exchange of information, the interim amendment of a franchise agreement, termination of franchise cooperation and consultation between the franchisor and its franchisee.
Where in the law?
A new title on the franchise agreement is introduced in Book 7 of the Dutch Civil Code.
What does the bill entail?
- Introduction of the basic principle 'good franchisor' and 'good franchisee'
The parties must behave as 'good franchisor' and 'good franchisee'. This means that the parties must be reasonable and careful towards each other. It applies to the run-up to the franchise relationship and to the franchise relationship as such.
- Disclosure in the pre-contractual phase
The franchisee must in any case be informed in a timely and specific manner about a list of subjects. There is also a general obligation for both parties to inform each other in a timely manner of everything that is or could reasonably be in interest of the other party.
- Cooling off period
To prevent a franchisee from agreeing to a franchise agreement of which he cannot properly oversee the content and the obligations and risks arising therefrom as a franchisee, a period of four (4) weeks applies between the time of receipt of all relevant information and the intended time of conclusion of the franchise agreement. During this period the draft franchise agreement may not be changed to the detriment of the franchisee.
- Content of the franchise agreement
The bill contains substantive regulations on the content of the franchise agreement. In principle, a contractual obligation may not go beyond what is customary in trade (e.g. exclusive purchasing provisions).
- Non-competition clause
The scope of non-competition clauses will be limited to one year after the end of the franchise agreement and the geographic area within which the franchisee was allowed to operate a business under the licensed franchise concept.
- Obligation to provide compensation for accrued goodwill
In practice, clauses are often included in the franchise agreement where the franchisee is obliged to sell his business to franchisors under unfavourable conditions, for example without compensation for accrued goodwill. The draft bill stipulates that provision must be made for compensation for accrued goodwill (insofar as this can reasonably be attributed to the franchisee and therefore not goodwill arising from the franchise concept itself).
- Consent to policy changes
Actions by the franchisor that have a significant impact on franchisees require prior consent. The consent of franchisee representation by a two-thirds majority binds all franchisees. Is there not a representative body that can agree on behalf of all franchisees? In that case the franchisor needs the consent of the individual franchisees.
Internet consultation
Responses to the draft bill can be submitted up to 31 January 2019. Responses published during the consultation period can be accessed via the hyperlink below:
https://www.internetconsultatie.nl/wet_franchise
For further information on franchising, distribution and agency, please contact Martine de Koning (Martine.de.Koning@kvdl.com), partner and head of the Commercial & International Trade section.
[1] https://www.internetconsultatie.nl/wet_franchise
[2] https://kvdl.com/en/articles/n...
