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Are you a franchisee or franchiser? You must comply with the regulations for the franchise sector. These regulations are meant to strengthen the position of the franchisee.
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 which includes among others the trademark, model or trade name, branding or corporate design. The formula also includes the knowledge and research results of the franchiser.
- the concept derived from the franchise formula. This is the operational commercial and organisational concept that ensures the uniform identity of the franchise.
The regulations cover four areas:
- the exchange of information before closing the franchise contract
- changing an existing franchise contract
- consultation between a franchiser and their franchisees
- ending a franchise collaboration
Exchange of information
Both parties need to supply information to the other party prior to the agreement. Franchisers have more obligations in this regard than franchisees.
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 supply the following at least 4 weeks before the intended starting date of the contract:
- a draft of the agreement, including annexes such as for instance a manual in which the formula is described
- a statement on the franchiser’s requirements and standards regarding compensation, premiums and surcharges or other financial requirements or investments
- 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)
- information on the way and frequency consultation between parties is arranged and, if applicable, contact details of the franchisees’ representation body
- information on if and how a franchisee is allowed competitive activities against the franchiser
- information on how, how often and how much information on turnover related data relevant to the franchisee will be available to the franchisee
- all other information that is reasonably deemed relevant to the franchise agreement
In the 4 weeks before concluding the franchise agreement the franchiser cannot:
- change the draft agreement (unless it is serves the franchisee)
- conclude the franchise agreement or inherent agreements with the exception of confidentially statements
- demand payments or investments related to the franchise agreement
If the agreement is a renewal of a previous agreement or if it concerns an agreement with a subsidiary of the franchiser the first 2 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.
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
When ending a franchise agreement a possible (written) competition clause may not be applicable for longer than 1 year. This possible competition clause may only be valid for the region in which the franchisee was active.
A franchiser is also not allowed to force a franchisee to sell his enterprise on adverse terms. The terms for ending an agreement, such as for instance the amount of goodwill and the way it is calculated, should be part of the original agreement.
For current franchise agreements transitional law is in place. This means that for several elements of the agreement there is a transitional period of 2 years. This applies to among others to:
- the right of consent
- competition clause
- determining the value of the company when ending the contract