On the first of January 2021, the Dutch Franchise Act (Franchise Act) will come into effect. The Franchise Act has major consequences for the relation between franchisor and franchisee and the franchise agreement that applies between them, not least for the franchisor. Both new and future agreements will have to comply with the Franchise Act. For new agreements a transitional period of two years will be provided.
Of course, adapting to the new obligations requires attention and energy and may, also in light of the ongoing corona crisis, cause additional concerns. In this blog, therefore, a number of important points of attention.
The Franchise Act is mandatory law. It is not possible to derogate to the detriment of the franchisees established in the Netherlands, even if a different (foreign) law has been declared applicable contractually. However, it is possible to derogate to the detriment of franchisees established outside of the Netherlands.
At least four weeks before the conclusion of the franchise agreement, the franchisor must inform the franchisee of the structure of the agreement, the relevant franchise fee and furthermore all information that can reasonably be considered important for the conclusion of the franchise agreement. The franchisor is not obligated to provide a revenue forecast.
Substantive minimum requirements of the franchise agreement
A number of minimum requirements regarding the franchise agreement will also be set by law:
- incorporating provisions relating to the presence of goodwill and the compensation of the franchisee for the determined amount of goodwill in case of acquisition of the company;
- a non-compete clause has to be limited temporally and geographically;
- for certain changes to the franchise formula, the franchisor must obtain permission from the majority of the franchisees in the Netherlands or the franchisees affected by the change.
Don’t act too late!