Franchise contracts - in the Netherlands

Franchise agreements - under Dutch law

There is no legal definition of franchising in the Dutch Civil Code. Nevertheless, there is a generally accepted understanding of what a franchise is. According to the Dutch Franchise Association (NFV) franchising is:

a system for distributing products and/or services and/or exploitation of technology, founded on a close and lasting cooperation between legally and economically independent businesses, the franchisor and the franchisee(s).

Essentially, setting-up a franchise is a method for two or more companies to cooperate whilst maintaining their own separate legal identities. The franchisor (franchisegever) is the owner of the intellectual property (including goodwill) of a company.

Under a franchise agreement, the franchisee (franchisenemer) obtains a license to exploit the franchisor’s intellectual property in consideration for payment. The franchisee may be required to act within in a strict set of guidelines and conditions intended to protect the franchisor’s interests. The franchise agreement or franchise handbook will also stipulate the obligations of the franchisor, for example commercial or technical advice and support.

What are the rules on franchising in the Netherlands?

Under Dutch law there are no specific statutory regulations concerning franchise. Franchises in the Netherlands are therefore regulated by general Dutch contract law, except where the parties have chosen to apply the laws of another country to their contract. Under Dutch law there are no formalities regarding franchises; a written contract is not required, but may, in some cases, be advisable.

Franchise arrangements frequently also engage other areas of law such as intellectual property law, the law of obligations, tenancy law and competition law. A notable feature of Dutch law is that extensive and directive supervision by the franchisor of the franchisee, could lead to an employment agreement under Dutch law based on mandatory regulations. In the Netherlands, franchise contracts are typically entered into for a fixed period of time.

Self-regulation of franchising in the Netherlands

In the Dutch and wider European context, there is also a framework of non-binding rules and guidelines in the field of franchising. Two important self-regulation authorities are the Nederlandse Franchise Vereniging (NFV) and the Europese Franchise Federatie.

The Dutch Franchise Code

The Dutch Franchising Code is a non-mandatory code regulating the conduct of parties to a franchise agreement. The code aims to balance the interests of franchisees and franchisors, taking into account the franchisor’s stronger position and the franchisee’s need for protection as the “weaker party”. Among others, it contains (pre)contractual disclosure obligations, provisions on the language of the agreement (Dutch) and rules on the settlement of disputes.

The Franchise code in its current form is not legally binding unless party agree to apply the code to their contractual relationship. This might change in the near future. A draft legislative Bill has been subject to public consultation. The draft Bill proposes to add a number of articles to the Dutch Civil Code that stipulate that the Franchise Code is applicable to all franchise agreements, unless parties explicitly deviate from the code or articles thereof in writing.

Some of the matters to consider when entering into a franchise agreement:

1. The duration of the franchise arrangement, for example whether the agreement will contain a conditional option to renew
2. Intellectual property: which intellectual property rights will the franchisee be entitled to use, under what conditions and for which purposes?
3. Confidentiality
4. The inclusion of a non-competition clause
5. Obligations of the franchisee/franchisor respectively
6. Termination of the franchise agreement, including for example, whether a serious breach of certain provisions will give rise to a right to terminate.

Liability of the franchisor under Dutch law

Naturally, the franchisee will want to be able to predict the profitability of the franchise arrangement before entering into the agreement. The franchisor is under no legal obligation to provide information about the profitability of the company, however, under certain circumstances the franchisor can be held liable by the franchisee if the figures and data provided to the franchisee turn out to be incorrect or incorrectly compiled. Furthermore, Dutch case law supports that the franchisor owes the franchisee a duty of care (zorgplicht) and may be liable if he breaches this duty of care.