Franchise agreement in the Netherlands: what the Franchise Act requires

A franchise agreement is the contract by which a franchisor grants a franchisee, for payment, the right and the obligation to operate a franchise formula in the way the franchisor prescribes. Since 1 January 2021 it is governed by the Dutch Franchise Act (Wet franchise), Articles 7:911-7:922 of the Dutch Civil Code (BW); under Article 7:922 BW these rules cannot be set aside to the detriment of a franchisee established in the Netherlands, whatever law the contract chooses.

The Act gives the franchisee a four-week standstill period before signing, a consent right on costly formula changes, a goodwill clause and a maximum one-year post-term non-compete. This article explains each rule and what franchisee and franchisor should check.

What does the Dutch Franchise Act require?

The Act rests on four blocks: disclosure before signing, a standstill period, information and consultation during the term, and rules for the end. Over all of them sits Article 7:912 BW: franchisor and franchisee must behave towards each other as a good franchisor and a good franchisee.

The Act applies to the substance, not the label. Under Article 7:911 BW an agreement that grants the right and imposes the obligation to operate a formula in the franchisor’s prescribed way is a franchise agreement, even if it is called a licence or distribution agreement.

Existing agreements had a transition period: the rules on goodwill, the post-term non-compete and consent for formula changes became binding on agreements concluded before 2021 from 1 January 2023. A contract that still has a two-year non-compete or no goodwill clause has not been updated. Our overview of ikike ikike na Netherlands na usoro iwu n'ọrụ shows how this works across a network.

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The franchisor supplies the formula: brand, system, manual, training, know-how and often purchasing and network marketing. The franchisee supplies capital, premises and staff, runs the outlet and bears the commercial risk.

The franchisee remains an independent entrepreneur who employs its own staff and answers for its own obligations. Where the franchisor’s control is so tight that the relationship resembles employment, the characterisation can be challenged; check this before signing.

What must happen before you sign?

Under Article 7:914 BW the franchisor must provide the draft agreement and the required information at least four weeks before the agreement is concluded. During those four weeks it may not change the draft to the franchisee’s detriment, conclude the agreement or related agreements (except a confidentiality agreement), or push the franchisee into payments or investments for the franchise.

Under Article 7:913 BW the franchisor must disclose the draft agreement with annexes, the fees, mark-ups and other financial contributions and required investments, and how and how often consultation takes place, including contact details of any franchisee representative body. It must also explain to what extent it may compete with the franchisee, including through a derived formula, and how the franchisee can see its turnover data.

Where available and reasonably relevant, the franchisor must also give information about its financial position and financial data for the intended location, or of comparable outlets, explaining why it considers them comparable. It must also share any other information it knows or should suspect is relevant. A franchisor is not liable just because a forecast proves wrong, but it can be if it knew or should have known the underlying figures were wrong and did not say so.

How do you use the standstill period?

Four weeks is short. Have the documents reviewed by a lawyer early, rebuild the forecasts with your own accountant from your own costs, speak to current and former franchisees, and check the franchisor’s filed accounts at the Chamber of Commerce (KVK).

The franchisee has duties too. Under Article 7:913(1) BW it must give the franchisor relevant information about its own financial position, and under Article 7:915 BW it must take reasonable steps to avoid signing on wrong assumptions. If essential information is still missing at the end of the four weeks, ask for it in writing before signing.

Which clauses decide the deal?

Beyond the statutory minimum, a few clauses determine whether the business works: the grant of rights and the manual, territory, fees, and term and renewal. Read these first.

Grant and manual. Check that the franchisor owns or may license the trade marks for the whole term, and what happens if it loses or assigns them. A manual the franchisor can rewrite at will can change your obligations without changing the contract; that is exactly what the consent rule in Article 7:921 BW is meant to control.

Territory and channels. An exclusive territory means no other outlet of the formula in your area. Check the definition (postcodes, radius, streets) and whether it covers online sales, delivery platforms and locations such as stations and airports. Carve-outs can empty an exclusivity clause.

Ụgwọ. Systems usually combine an entry fee, a continuing fee and a marketing contribution, often as a percentage of turnover. Under Article 7:916(2) BW the franchisor must report every year how far the contributions paid in the previous year covered the costs they were meant for. Add purchasing margins, technology fees and refurbishment duties to your model, and check how fees may be raised.

Term and renewal. The Act sets no duration. Match the term to the payback period and the lease of the premises; a five-year franchise with a ten-year lease leaves you exposed. Check renewal conditions and any refurbishment duty just before the end of the term.

When does a formula change need the franchisees’ consent?

Under Article 7:921 BW the franchisor needs prior consent if a formula change or a derived formula requires an investment from the franchisee, raises fees or other costs, or is reasonably expected to reduce its turnover, above a level set in the agreement. Consent comes either from a majority of the franchisees in the Netherlands or from each affected franchisee, depending on the agreement.

If the agreement sets no such level, Article 7:921(2) BW requires consent for every such change, however small. A threshold set so high that nothing ever crosses it can be tested against the good-franchisor standard of Article 7:912 BW.

A derived formula is a formula the franchisor operates, directly or through others, that competes with the franchise: discount lines, delivery-only brands or online-only concepts. Under Article 7:916(1) BW the franchisor must inform franchisees in time of its decision to use one, and under Article 7:916(3) BW franchisor and franchisee must consult at least once a year. A network with an active franchisee council is better placed.

What limits does competition law set?

A franchise agreement is also subject to EU and Dutch competition law. The EU Vertical Block Exemption Regulation exempts most franchise agreements if both parties’ market shares stay below the threshold in the Regulation and the agreement contains no hardcore restriction.

The franchisor may recommend or cap resale prices but may not fix them. It may protect an exclusive territory against active selling by other franchisees, but restricting passive sales or banning online sales is a serious restriction. A non-compete during the term is only exempted for a limited period, apart from restrictions needed to protect the franchisor’s know-how. Infringing clauses are void and the Netherlands Authority for Consumers and Markets (ACM) can impose fines. Our guide to the ụdị nkwekọrịta azụmaahịa compares franchise, distribution and agency.

How does a franchise agreement end?

It ends by expiry without renewal, by termination for breach, or by agreement. For termination for breach, the ordinary rules apply: unless the contract says otherwise, the defaulting party must first receive a written notice of default with a reasonable period to perform.

Immediate termination clauses for defined events, such as non-payment after a grace period or insolvency, are generally valid but read strictly. A franchisor that tolerated the same conduct for years may run into Article 7:912 BW. Non-renewal of a fixed term is in principle allowed, but reasonableness and fairness can require proper notice, a genuine reason or compensation, especially where the franchisee made unrecovered investments at the franchisor’s request.

Is a post-term non-compete valid?

Only if it meets all conditions of Article 7:920(2) BW. It must be in writing, cover only goods or services that compete with the franchise, be indispensable to protect the know-how transferred, last no longer than one year after the end of the agreement, and not extend beyond the area where the franchisee operated the formula.

Clauses drafted before 2021 often fail on duration or geographic scope.

How is goodwill dealt with?

The Act creates no automatic goodwill payment, but Article 7:920(1) BW requires the agreement to set out how it is determined whether goodwill exists, its size and how much is attributable to the franchisor. It must also state how goodwill reasonably attributable to the franchisee is paid out if the franchisor takes over the business to continue it or transfer it to a new franchisee.

Under Article 7:922 BW a clause contrary to Article 7:920 BW is void. For a franchisee, the valuation method agreed on day one decides what the business is worth on exit.

After the end, the franchisee usually must stop using the brand, de-identify the premises, return the manual, transfer or delete customer data and settle fees. Confidentiality duties usually continue without the one-year limit. If the premises are leased through the franchisor, check how lease and franchise interact before signing.

What happens in a dispute or insolvency?

Most disputes concern unrealistic forecasts, support not delivered, formula changes without consent, territory encroachment, fee increases and exit terms. A failure of support under Article 7:919 BW calls for a notice of default; a misleading pre-contractual picture can ground a claim for error (dwaling) or tort, and in serious cases annulment.

A good agreement has a staged dispute clause with time limits: negotiation, mediation, then arbitration or court. Our guide to na-edozi esemokwu azụmahịa na Netherlands na-akọwa ụzọ ndị ahụ.

If the franchisor goes bankrupt, the trustee (curator) decides whether to continue or sell the network and is not obliged to perform; the franchisee’s claim is usually an unsecured claim. A sale of the formula to a new owner usually leaves the agreements in place. Our guide on enweghịzi ego nke onye mmekọ nkwekọrịta explains your options.

What should you check as a franchisee?

Focus on whether the business works and what you keep at the end. Check these points during the four-week standstill.

• Did you receive all information required by Article 7:913 BW at least four weeks before signing?
• Do the forecasts hold up when rebuilt from your own cost base?
• Does the territory exclusivity cover online and delivery channels?
• What threshold triggers your consent right under Article 7:921 BW, and who gives consent?
• Does the goodwill clause set a workable valuation method, and is the non-compete within Article 7:920(2) BW?
• Do the franchise term and the lease term match?

What should you check as a franchisor?

Clauses that conflict with the Act do not bind, which you usually discover when you need them. Check these points for every agreement in your network.

• Is the disclosure package complete and sent at least four weeks before signing, without pressure to pay or invest?
• Does the agreement contain a goodwill clause meeting Article 7:920(1) BW?
• Is a consent threshold set for formula changes, and is it realistic?
• Do you report annually on the use of contributions and consult at least once a year (Article 7:916 BW)?
• Are price, territory and online-sales clauses compatible with competition law?

What can we do for you with a franchise agreement?

Anyị ụlọ ọrụ ndị ọka iwu advise franchisors and franchisees; related contracts are covered in our guides to the nkwekọrịta ikere òkè, na Nkwekọrịta ọrụ IT, nkwekọrịta azụmaahịa mba ụwa na nke anyị Ntuziaka iwu ụlọ ọrụ Dutch.

• We review a draft franchise agreement and disclosure package within the four-week standstill period.
• We draft or update franchise agreements and manuals to comply with Articles 7:911-7:922 BW.
• We assess consent thresholds and formula changes and advise the franchisee council.
• We negotiate goodwill, non-compete and exit terms.
• We act in disputes on forecasts, support, territory and termination.

Summary

• The Franchise Act (Articles 7:911-7:922 BW) applies since 1 January 2021 and is mandatory for franchisees established in the Netherlands.
• The franchisor must disclose the draft agreement and key information at least four weeks before signing (Article 7:914 BW).
• Formula changes above an agreed threshold need franchisee consent; without a threshold, consent is always required (Article 7:921 BW).
• A post-term non-compete may last at most one year and the agreement must regulate goodwill (Article 7:920 BW).

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