Drawing up a franchise contract

Published by:
Netherlands Chamber of Commerce, KVK
Netherlands Chamber of Commerce, KVK

A franchise contract is an agreement between franchiser and franchisee on how they work together. The current franchise law has been in force since 1 January 2021. It specifies the minimum information that must be included in the contract. Read how to draw up a franchise contract and what to do before signing.

In the franchise contract, you lay down agreements. For example, on the duration of the franchise agreement, insurances, and the business premises. The contract also states what fees you have to pay to run the franchise.

Before you sign: protect your interests

Before you sign a franchise contract, there are a number of things you should pay attention to. This will strengthen your position as a franchisee or franchiser.

1. Sharing financial and general information and cooling-off period

You must give information to each other. This applies to the franchisee and the franchiser. For example, about your financial situation, the franchise formula, and investments. This allows the franchisee to properly research how healthy the franchise formula is and what the risks are.

After that, you both have a 4-week cooling-off period during which you can do research. You may not make other agreements or enforce payments during this time. Read more about what information you must provide.

2. Duty of care

During the term of the franchise contract, the franchiser must provide assistance to the franchisee. This is the so-called duty of care. The franchiser offers support, for example, by providing courses, advertising, and financial help.

3. Changes during the agreement

If changes take place during the agreement, the franchiser must inform the franchisee in time. For example, if the franchiser wants to start an online shop or offer a different range of products. The franchiser must seek prior consent and provide all relevant information.

4. End of contract

When the contract ends, a written non-competition clause may apply. This may not exceed 1 year. And only for the area in which the franchisee worked. Check this. This prevents that the franchisee is restricted from doing anything else. Also, the franchiser may not force the franchisee to sell their business on unfavourable terms. The franchise contract therefore sets out how goodwill is determined and calculated.

Read more about the points of attention before entering into a contract on KVK.nl.

Drawing up a franchise contract in 3 steps

1. Confidentiality agreement: exchange of information

Often, the franchiser will first ask you to sign a non-disclosure agreement. This prevents the franchiser from disclosing business-sensitive information. And allows the franchiser to give detailed information about the formula.

2. Letter of intent: start of the executive period

If the franchisee and the franchiser have a positive feeling, they conclude a letter of intent. This is the first agreement between franchiser and franchisee. This begins the executive period. Usually, the franchisee then pays part or all of the entry fee. The franchisee prepares a business plan with which the franchiser usually cooperates. This is followed by an establishment location survey that provides an estimate of the turnover of the intended location.

3. The franchise contract: during franchising

This agreement sets out the cooperation between the franchiser and the franchisee. On what terms the cooperation will take place and what rights and obligations both have.

The website of The National Franchise Guide contains an example of a franchise contract (in Dutch).

Questions relating to this article?

Please contact the Netherlands Chamber of Commerce, KVK