Entry into force and transition period

The Dutch Franchise Act[1] entered into force on 1 January 2021 and is mandatory as far as Franchise Agreements are concerned concluded with franchisees established in the Netherlands regardless of a choice of law clause in the agreement.  A transition period of two years applies for existing agreements as far as specific issues such as the requirement of the franchisee’s consent for certain measures envisaged by the franchisor, post-contractual non-compete obligations and provisions on the (method of calculation) of goodwill created by the franchisee and payment of such goodwill after termination.   

Governing law and jurisdiction issues  

Parties are free to agree on the governing law and the jurisdiction in case of disputes. However if the franchisee is established in the Netherlands, the Franchise Act applies even if the Franchise Agreement contains an explicit choice for a foreign law. However, if the Franchise Agreement is governed by Dutch law, the applicability of the Franchise Act can be excluded if the franchisee is established outside the Netherlands.

It remains an issue of debate what will happen if a dispute occurs regarding a franchise agreement which contains a choice for foreign law and attributes jurisdiction to a foreign court. More specifically, will a foreign court have to consider the entire Franchise Act as an overriding rule of mandatory which needs to be applied regardless of the choice of law?[2]

Key items of the new Act

Pre-contractual disclosure: the franchisor is under an obligation to provide the franchisee, at least four weeks prior to the signing of the Franchise Agreement, with information on a variety of issues which are considered relevant within the context of a franchise agreement.

Standstill: during the period of four weeks after the provision of the information sub a) the franchisee.

General disclosure obligation: During the term of the Franchise Agreement the franchisor similarly has the obligation to provide information regarding envisaged amendments, investments, the use of derivative formulas and other information which can be assumed to be relevant in connection with the execution of the franchise. Consent of the franchisee is required for the implementation of such envisaged measures.

(Post term) non-compete: non-compete obligations during the term of the Franchise Agreement are generally allowed if necessary to protect the know-how and goodwill of the franchisor and to maintain the common identity and reputation of the franchise network. Post-term non-compete obligations may not exceed one year after termination and may not exceed the contractual geographical area of the franchise.

Goodwill: the Franchise Agreement must provide for clarity on how the goodwill that can be reasonably attributed to the franchisee is calculated and paid to the franchisee if the franchisor takes over the franchise after termination and continues it independently or transfers the franchise to a newly elected franchisee.

Franchise Agreements concluded as from 1 January 2021 need to comply in full with the requirements under the new Franchise Act. Existing Franchise Agreements will have to adapt by 31 December 2023 at the latest.

We will gladly assist and advise franchise organizations in the assessment process of issues that need to be dealt with and the implementation thereof. For further information, please contact Jaap van Till, Partner at Loyal.

[1] https://zoek.officielebekendmakingen.nl/stb-2020-251.pdf

[2] https://www.bjutijdschriften.nl/tijdschrift/contracteren/2020/4/Contr_1566-0893_2020_022_004_002.pdf