Franchising is a contractual mechanism through which an entity (franchisor) issues a paid license for use of its business practices and systems and/or its commercial name to another entity (franchisee).
Dutch laws on franchise agreements
The Dutch legislation does not address franchise agreements specifically, so the general provisions of the law on contracts and competition applies. Franchising agreements are usually complex and are therefore concluded in writing. One should consider the following common principles when preparing a franchise agreement under the laws of the Netherlands:
1. Franchise contracts are not a subject to specific national regulations.
2. The general Dutch law on agreements stipulates the guiding principle of fairness and reasonableness (“billijkheid en redelijkheid” in Dutch).
3. The party from the Netherlands has to provide information about its business to the Trade Registry at the Commercial Chamber.
Obligations and rights of the franchisee / franchisor
The franchisor carries specific obligations of care under the agreement because of the peculiar nature of the franchising mechanism. These obligations include the provision of some assistance and advice to the franchisee. The Dutch legislation does not require mandatory disclosure of pre-contractual information. The principles of fairness and reasonableness, however, still apply. As a consequence, the parties are required to take all reasonable measures to prevent the other contracting party to conclude an agreement on the basis of misleading information.
Furthermore, the franchisor does not have to provide exploitation forecasts to the franchisee. Please, keep in mind, that once provided, any information is deemed truthful by the other party. Thus the provision of exploitation forecasts that are overly optimistic or not substantiated by a thorough research of the market may result in franchisor liability.
The law in the Netherlands does not include specific provisions with respect to franchise fees, royalties, clauses to prevent competition, advertising and reporting obligations, so the contracting parties have the freedom to determine the extent of the franchisee’s obligations.
Agreement termination under the Dutch law
The contracting parties are free to determine the grounds on which agreement termination is allowed. If they have not drafted any rules for termination, fixed-term agreements cannot be cancelled unless unforeseen circumstances arise. Agreements concluded for indefinite periods can, in principle, be terminated with reasonable advanced notice. The period considered reasonable for advanced notification may vary depending on the particular circumstances.
Annulment is another way to terminate a contract. Art. 6:265 in the National Civil Code states that default by one of the parties gives the other the option to cancel the agreement if the nature of the default justifies annulment. Art. 6:228 of the same Code also gives the option to declare the contract void on the grounds of an error (“dwaling” in Dutch).
It should be noted that even when an agreement is legally terminated some losses may be considered outside of the margins of the franchisee’s acceptable business risk and may require compensation.
In case you have questions regarding franchise agreements under the law of the Netherlands, please, feel free to contact our Dutch law firm. You can also check our article on use and protection of intellectual property in the Netherlands. In the article, you will find information on patents, trademarks, trade names and copyrights in the Netherlands.