Rules for franchises

Are you a franchisee or franchiser? Or do you want to join a franchise with a particular formula or concept? For example, a restaurant or retail chain? You must draw up a franchise agreement.

What is a franchise agreement?

A franchise agreement is a contract between:

• the franchisee: an entrepreneur who runs their own business as one of a chain businesses with the same name and formula; and the
• franchisor: the owner of the chain

In the franchise agreement, both parties agree on how to run the business. Putting these agreements into writing protects both the franchisee and the franchisor's interests, but franchisors have more obligations than franchisees. This applies mainly to providing information about the business.

What is in the franchise agreement?

Both parties need to supply information to the other party prior to the franchise agreement. Franchisers have more obligations in this regard than franchisees. This allows you to examine how healthy the franchise is. And what the risks are.

The (intended) franchisee must supply the franchiser with information on his financial situation insofar as this is relevant to concluding the franchise agreement.

The franchiser should at least provide you with information about:

• the franchise agreement, including annexes and at least an explanation of the franchise formula
• information on the way and frequency of consultation between parties is arranged and, if applicable, contact details of the franchisees’ representation body
• contact details of the other franchisees
• an overview and explanation of fees, investments, and other financial contributions to be paid such as start-up costs (entrance fee) and marketing costs
• information on how, how often, and how much information on turnover related data relevant to the franchisee will be made available to the franchisee
• all information on the financial situation of the franchiser
• financial data on the intended location or that of comparable establishments (in that case the franchiser must substantiate the comparison)
• all other information that is reasonably deemed relevant to the franchise agreement

Signing a franchise agreement

A franchise agreement is the agreement through which a franchiser grants a franchisee the right and the obligation to exploit a franchise for the production or sales of a product or service.

The agreement should include at least:

• details of the franchiser
• details of the franchisee
• the franchise formula including:

  • tradename
  • agreements on branding or corporate design
  • knowledge and research results of the franchiser

Cancellation period

Before the franchise agreement enters into effect, there is a reflection period (standstill) of 4 weeks. During those 4 weeks, the franchiser cannot:

• change the draft agreement (unless it is serves the franchisee)
• conclude the franchise agreement or the agreements associated with it (except non-disclosure agreements)
• request payments or investments related to the franchise agreement

Is the agreement a renewal of an existing franchise agreement or an agreement with a subsidiary of the franchisor? Then the first two requirements do not apply.

Changing a franchise agreement

If the franchiser wishes to make changes to the agreement, he should inform the franchisees of the changes and the (financial) consequences in time.

• For changes that imply investments or that lead to costs for the franchisee, the franchiser must have the consent of the majority of franchisees established in the Netherlands beforehand.
• For changes that will result in turnover loss the franchiser must have the explicit consent of each of the franchisees established in the Netherlands, before implementing any of these changes.

What are the franchise's obligations?

The franchiser must suport the franchisee with, for instance, assistance and commercial and technical support . This is the franchiser's duty of care. If the franchisee asks for help, the franchisor must respond.

Consultation between franchiser and franchisee

The franchiser and the franchisee(s) have a consultation at least once a year. This requirement is regardless of consultations with regard to changes to the agreement or circumstances of either party.

This is part of the agreement that both parties behave in a way that is expected of a good franchiser and a good franchisee.

Ending a franchise agreement

The franchise agreement must state the terms for ending the agreement. For example:

• the value of a participating business and how you calculate this value
• the non-compete clause: rules on competition may not apply for more than 1 year after termination of the agreement and only in the region in which the franchisee was active
• that it is not a forced sale, with the franchiser forcing the franchisee to stop