A franchise agreement is the contract by which a franchisor grants a franchisee the right, for a fee, to operate a formula. Since the Dutch Franchise Act, mandatory rules protect the franchisee.
Legal basis
The Franchise Act entered into force on 1 January 2021 and appears in title 16 of Book 7 of the Civil Code, Articles 7:911 to 7:922. Article 7:913 requires the franchisor to provide extensive pre-contractual information at least four weeks before the agreement is concluded, including the draft agreement, financial data on the intended location and information on operating costs; during that standstill period the agreement may not be changed to the franchisee’s detriment. Article 7:920 requires consent from or consultation of the franchisees for changes to the formula above a threshold set in the agreement, regulates goodwill compensation on termination, and limits a post-term non-compete clause to one year, to the area in which the franchisee operated, and to what is necessary to protect the know-how. The provisions are mandatory for franchisees established in the Netherlands.
How it works in practice
The information duty is the pivot. Forecasts are not compulsory, but a franchisor who provides them must be careful; unsound forecasts create liability. For the franchisee it is sensible to use the standstill period for an independent calculation and a legal review, because the room to manoeuvre shrinks afterwards.
Where it goes wrong
Franchisors use older templates lacking the threshold for formula changes, so that every change requires consent. A second problem is an excessively wide post-term restraint, which can fall away entirely. Third, the goodwill arrangement is often left unregulated, although the Act requires the method of calculation to appear in the agreement.
Related terms
The franchise agreement connects to the commercial agency agreement, the non-compete clause and the general terms and conditions.
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