The Dutch Franchise Act
The Franchise Act came into effect on 1 January 2021. Its purpose is to create a balanced relationship between franchisee and franchisor and to strengthen the franchisee's position.
The Franchise Act contains a number of obligations for both the franchisee and franchisor.
What do you now need to consider? Below are the key areas of focus from the Franchise Act.
What does this mean for the franchise industry?
Since 1 January 2021, franchisors and franchisees have had to conform to the Franchise Act. From this date franchise agreements have had to comply with the new Act since the provisions in the new Title 16 of Book 7 of the Dutch Civil Code are mandatory provisions.
A transitional period applies to some specific provisions for franchise agreements dating from before the entry into force. These are provisions relating to goodwill, the non-competition clause and the consent requirement for amendments to the franchise formula. A transitional period of 2 years, within which the existing franchise agreement must be aligned with the new Act, applies to these provisions. New agreements concluded after 1 January 2021 must comply directly and in full with the new Act, including in terms of goodwill, non-competition and the consent requirement.
The pre-contractual phase
Since 2021, the franchisor has had to provide the franchisee, in good time, with certain information specified in the Act, during their negotiations on a new franchise agreement.
The franchisor has no obligation to provide an operating forecast. All the information prescribed by the Act must be provided at least four weeks before the new franchise agreement is concluded. This four-week period is regarded as a stand-still period, meaning that no further changes may be made to the documentation prepared.
The terms of the franchise agreement
The Franchise Act contains certain requirements which the terms of franchise agreement must in any event meet. They relate to the following topics:
- goodwill fee: the agreement must stipulate how to determine whether the company contains goodwill and, if so, how much;
- post-contractual non-competition clause: the period stipulated in such clause must be limited to one year after the end of the agreement and the field covered by such clause must be limited to the field within which the franchise is exploited;
- interim amendment of the franchise agreement or formula (consent requirement): the franchise agreement may include a specific threshold amount with respect to changes. Henceforth, the consent of a majority of the franchisees based in the Netherlands, or of each of the franchisees based in the Netherlands affected by the amendment, will be required in some cases (e.g. investments, financial contributions, costs or loss of turnover by the franchisee) for the implementation of changes in the franchise agreement or formula, or if the franchisee intends to exploit a derivative formula without amending the franchise agreement to that effect. Without a threshold amount, every change requires permission.
Obligations during the collaboration
In future, the franchisor will have to supply the franchisees with information regarding the use of various fees on a yearly basis. For example, information needs to be supplied on how the various fees are used. These are, for the most part, the usual fees such as a marketing fee or automation fee. The idea is that obliging the franchisor to share information on this will allow for consultations on the optimal use of the fees by the franchise organisation. What is more, the franchisee must be informed in good time of a number of other matters specified in the new Act.
The provisions of the Franchise Act are mandatory for franchisees based in the Netherlands. Deviations are permitted if the franchisor is based in the Netherlands, but the franchisee is based abroad, even if Dutch law has been declared applicable to the franchise agreement.
What do franchisors need to do?
With the Franchise Act having taken effect on 1 January 2021, there is work to be done for the franchise industry and especially for franchisors. What they need to do:
- bring agreements in line with the Franchise Act as soon as possible;
- consider how they will align existing franchise agreements with the Franchise Act before the end of the transitional period as regards goodwill, non-competition and consent to interim amendments. What a reasonable and feasible threshold is for those amendments needs to be examined;
- remember to review the other documents too (e.g. the handbook) and the processes that need to be completed;
- examine whether and how the recruitment and selection of franchisees needs to be modified. Verify whether all the requisite information for potential franchisees is available and is made available;
- next, consider whether to draw up a Pre-contractual Information Document (PID) like they do in Belgium;
- finally, consider a way to check how certain fees are used and how to inform the franchisee about this, and about the other matters specified in the new Act.
What can you contact us for?
For all your questions regarding the implementation of the Franchise Act, for example regarding the adaptation of your agreements and documentation or questions related to the necessary consultation with franchisees, please contact our franchise specialist Mariska Nijenhof-Wolters. She will be happy to help you!