Dutch Franchise Act: the importance of pre-contractual information document

As per 1 January 2021, the Franchise Act (Wet franchise) came into effect in the Netherlands. This Act sets out specific rules for both franchisors and franchisees when entering into a franchise agreement. The Franchise Act regulates matters in both the pre-contractual phase and the (post-)contractual phase.

In this blog series, we will take a closer look at the practical side and interpretation of the Franchise Act. This article focuses on the pre-contractual information document.

Pre-contractual phase
The pre-contractual phase is the period prior to the conclusion of the franchise agreement between the franchisor and franchisee. This phase starts when the parties enter into negotiations with each other. If the franchisor and franchisee reach the final terms and proceed to sign the agreement, the pre-contractual phase ends.

The Franchise Act contains some obligations during the pre-contractual phase. For the franchisee, there is a duty to provide the franchisor with information on its financial position that is reasonably considered important when entering into the franchise agreement.

The franchisor is on its turn obliged to make certain information available to the franchisee. The information provided by the franchisor is also known as the pre-contractual information document (PID).

Pre-contractual information document
The pre-contractual information document includes all information relevant for the prospective franchisee to make a careful consideration of entering into the franchise agreement with the franchisor.

The Franchise Act states that the PID must include at least the following:

• draft franchise agreement, including annexes;
• overview of the fees, commission or other financial contributions / investments to be paid by the franchisee;
• form and frequency of meetings between the franchisor and the franchisee (if available, the contact details of the representative body of the franchisees);
• manner in which the franchisor may compete with the franchisee trough another franchise formula;
• frequency and manner in which the franchisee may learn about revenue forecasts;
• financial position of the franchisor;
• information on the potential franchise location (if not available, information should be provided from comparable franchisees);
• any other information which the franchisor knows or may reasonably suspect to be important for the conclusion of the franchise agreement.

Standstill period
The franchisor must provide the PID to the franchisee at least 4 weeks prior to entering into the franchise agreement. This period is also referred to as the standstill period whereby the franchisor is prohibited to make any amendments in the offer made. If any changes occur in the terms of the franchise agreement, then the standstill period will start over. In principle, the franchisor can only make a final offer (without revoking) and the franchisee has the choice of either accepting or entering into further negotiations.¹

During the standstill period, the franchisor is not authorized to enter with the franchisee into the franchise agreement or any other inseparable agreement. Think, for example, the lease agreement of the location where the franchisee would establish. However, an exception is made for entering into the non-disclosure agreement pursuant to which the franchisor will provide confidential information regarding the franchise formula.

Also, the franchisor is not allowed to induce the franchisee to make payments or investments (in)directly related to entering into the franchise agreement, including the purchase of certain equipment.

According to the Franchise Act, the standstill period does not apply if:

• the successive franchise agreement will be entered into by and between the same franchisor and franchisee;
• the new franchise agreement will be agreed between the franchisor on one side and a subsidiary or group company of the (original) franchisee on the other side and is related to the same franchise formula.

Conclusion
As the Franchise Act require that certain information needs to be made available to the franchisee, it is advisable for the franchisor to have a clear and straightforward PID. In view of the standstill period, it is important to have a record within your organization of which information has been provided to which party. If the obligations under the Franchise Act are not properly met by the franchisor, the franchisee could claim damages or annulment of the franchise agreement which may have far-reaching consequences.

If you have any questions regarding the pre-contractual information document, please contact Philip ter Burg, Susanna Tang or any of the other BUREN specialists of Commercial Contracts.

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¹ Court of the Central Netherlands, 30 June 2021, ECLI:NL:RBMNE:2021:2840.