All questions

Franchise law

i Legislation

In the Netherlands, there is no statutory law on franchising at present. There is a wide range of case law on franchising from which it is clear that civil law applies, including statutory and case law on contracts, as well as the specific rules on trademarks, trade names, and Dutch and European competition law. In addition, franchisors who are members of the NFV have to comply with the European Franchise Federation's European Code of Ethics for Franchising. In 2017, a legislative proposal was drafted to provide a statutory basis for self-regulation guidance, the Dutch Franchise Code (DFC). However, this legislative proposal was heavily criticised by franchisors and academics. The government announced on 8 February 2018 that the DFC will not be established on a statutory basis. A new draft bill on franchising was published for public consultation on 12 December 2018. The draft bill is open for internet consultation up to 31 January 2019. Responses may be submitted until this date. Responses may be submitted until this date. The draft bill can be adjusted to reflect the outcome of the internet consultation. After the internet consultation, the draft bill is subject to a full review by the parliament. It is therefore not clear yet if and in which form the draft bill on franchising will be implemented in the Dutch Civil Code (see Section VII).

ii Pre-contractual disclosure

There are currently no statutory pre-contractual disclosure obligations for franchisors. However, the above-mentioned draft bill on franchising includes rules for the pre-contractual exchange of information (see Section VII).

Based on the general rules regarding error, a franchisee can annul a franchise agreement if he or she was in error about relevant circumstances on the basis of a statement or information provided (or omission to provide the same) by the franchisor, and if he or she would not have concluded the agreement without that information.

From general contract law, it follows that the franchisor has an obligation to provide relevant information to a franchisee and a franchisee also has a duty to ask questions to get information. The scope of these duties depend on the power and specific position and knowledge of each party. Nevertheless, the duty to inform the other party of relevant information generally outweighs the duty to investigate.

In Paalman v. Lampenier, the Dutch Supreme Court determined that the doctrine of reasonableness and fairness does not, in principle, place an obligation on franchisors to provide a financial prognosis to a prospective franchisee except in special circumstances. The Supreme Court recently confirmed this ruling in the Albert Heijn v.Albert Heijn Franchising BV case. Further, the Supreme Court ruled in this case that the obligations included in the European Code of Ethics – such as providing information in the pre-contractual phase – are not 'prevalent Dutch legal views' pursuant to Article 3:12 DCC.

It follows from lower court case law that if the franchisor does provide a profitability assessment to the franchisee, the franchisor has a special duty of care. A financial assessment has to be diligently prepared. This means that the financial assessment must be based on a careful and thorough location survey and market investigation, and must contain a clear substantiation of the figures. If the franchisor, for instance, provides the franchisee with a financial prognosis and is aware that the prognosis contains serious flaws but does not notify the franchisee of those flaws, the franchisor may be found to have acted wrongfully and be held liable for damages. This was confirmed by the Supreme Court in the StreetOne case, and it was clarified that if the franchisor prepared the forecast him- or herself (or a party for which the franchisor is liable pursuant to Article 6:170–6:172 DCC) he or she is responsible if it was not diligently prepared. If the franchisee relies on incorrect information (regardless of whether the franchisor knew it was flawed), and proves that he or she would not have entered into the agreement without that information, he or she may nullify the agreement afterwards. Consequently, the franchisee must be placed in a position as if the agreement had not been concluded.

If the revenues of the franchisee turn out lower than the financial prognosis of the franchisor, this does not automatically mean that the financial prognosis was not of the required quality. Disappointing results may also result from unexpected circumstances (i.e., flaws in the exploitation of the store by franchisee or an economic recession). The franchisee is also obliged to independently investigate the proposition. Case law confirms that a candidate franchisee must have a critical attitude towards information provided by the franchisor regarding future revenues of a new franchise concept. However, it has also been decided that there is no duty on the franchisee to investigate the correctness of the prognosis in the event that the franchisor is a big professional party, who ensured that the prognosis was conducted with 'great care', and where the franchisor put the franchisee under time pressure to sign the agreement.

According to the draft bill the franchisee must in any case be informed in a timely and specific manner about a list of subjects. There is also a general obligation for both parties to inform each other in a timely manner of everything that is or could reasonably be in the other party's interest. In that regard, the draft bill states that the provision of information prior to the conclusion of a franchise agreement must take place at least four weeks before the conclusion of the agreement. The draft bill does not include an explicit obligation to provide a financial prognosis.

iii Registration

There are no specific Dutch registration requirements for franchises in the Netherlands. All companies are obliged to register in the trade register of the Dutch Chamber of Commerce. Zoning and other administrative law requirements may apply depending on the type of franchised business.

iv Mandatory clauses

Currently, no franchise-specific legislation has been adopted. For this reason, there are no mandatory clauses that must be included in franchise agreements at present. As stated before, the new draft bill on franchising was published on 12 December 2018. The bill contains substantive regulations on the content of the franchise agreement. For example, the draft bill states that the franchise agreement shall include provisions on (the calculation of) goodwill, consultation between franchisee and franchisor, and a requirement for consent of a two-thirds majority of the representative body of the franchisees or of the relevant franchisee for amendments of the franchise agreement (see Section VII).

v Guarantees and protection

In general, a franchisor can enforce a surety that is provided by a franchisee. Based on Dutch family law, a surety provided by a franchisee may be subject to the approval of the franchisee's spouse. This approval is not needed in the event it is performed by a director of a private company with limited liability who alone or jointly with his or her co-directors holds a majority of shares, provided it is made in the normal conduct of the business of the company. Under normal circumstances, this will be the case when a director commits himself or herself as surety or joint and several co-obligor under a franchise agreement.