The Franchise Act ensures balance with regard to the interests of the franchisor and franchisee.


Franchising is of significant importance to the Dutch economy. It is prevalent across various sectors, including retail, services, and healthcare. Furthermore, franchising manifests in numerous forms, ranging from soft franchising—where the franchisee enjoys considerable autonomy within the franchise framework—to hard franchising, which offers the franchisee far less freedom. Until the beginning of this year, there were no specific legal provisions for franchising. In previous articles, we have already informed you about the Franchise Act. As of now, the Franchise Act took effect on January 1, 2021.

The Objective

Naturally, there is an inherent imbalance of power in favor of the franchisor compared to the franchisee. This imbalance stems from the franchisor's position as the holder of the franchise formula. In practice, it has been observed that the way the franchisor exercises this power can lead to unreasonable and undesirable situations for the franchisee. The new Franchise Act aims to strengthen the position of franchisees.

The Scope of Application

The Franchise Act applies to all types of franchising regardless of the classification that the parties themselves assign to their collaboration. The law does not differentiate between 'hard franchise' and 'soft franchise'.

The Content

Broadly, the Franchise Act encompasses rules concerning four distinct areas.

The Franchise Act mandates the minimum information that franchisors must provide to potential franchisees. This information must be furnished in a timely manner (at least four weeks before signing the franchise agreement). During these four weeks prior to the conclusion of the agreement, there is a 'standstill' period. In this period, the franchisor may not alter the draft of the agreement to the detriment of the franchisee. The franchisor is also prohibited from entering into any agreements with the franchisee during this period (except for a confidentiality agreement). Additionally, the franchisor may not encourage the franchisee to make payments or investments related to the franchise agreement yet to be concluded, including but not limited to a lease agreement. However, it is permissible to require the franchisee to pay for their own advisors.

The Franchise Act includes a consent right for franchisees concerning interim changes to the franchise formula or the operation of a derivative formula (such as an online store) that have financial consequences for the franchisees. Franchisors may include a provision in the franchise agreement stating that the consent of the majority of franchisees or of the individually affected franchisees is only required if the demanded investment or the loss of profit exceeds a certain threshold amount. Multiple threshold amounts can be stipulated. If no threshold amounts are included in the franchise agreement, it is required that the franchisor obtains the consent of more than half of all franchisees or the franchisees who are affected by the franchisor's intention for any changes.

Under the Franchise Act, there must be at least one meeting per year between the franchisor and the franchisee, and the franchisor is required to annually inform the franchisee about the extent to which the franchisee's financial contributions, costs, or investments cover what the franchisor intended. Additionally, throughout the duration of the franchise agreement, the franchisor has an ongoing obligation to promptly inform the franchisee about any minor changes.

The Franchise Act sets specific requirements for the compensation of goodwill upon the termination of the franchise relationship. The franchise agreement must clearly define how the value of the franchise outlet is determined when a franchisee wishes to end the collaboration and sell their outlet to the franchisor. The Franchise Act also imposes conditions on non-compete clauses in franchise agreements. For instance, the non-compete clause must not last longer than one year, must only relate to goods and services that compete with those covered by the franchise agreement, must be essential to protect the know-how transferred by the franchisor to the franchisee, and the geographical scope of the restriction must not exceed the area in which the franchisee operated the franchise formula.

Franchise agreements entered into from January 1, 2021, must comply with all provisions of the Franchise Act. For franchise agreements concluded before January 1, 2021, there is an exception regarding the provisions of the Franchise Act concerning goodwill, non-compete clauses, and the consent rights of the franchisees. A two-year transitional period applies to these provisions. This means that agreements made before January 1, 2021, must be brought into compliance with the aforementioned provisions of the Franchise Act by January 1, 2023. Other provisions of the Franchise Act, such as the ongoing obligation to provide information, are immediately applicable to these agreements.

Linda Relouw

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Linda Relouw

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