Are you a franchisor or franchisee in the Netherlands ready for change? Perhaps the collaboration isn’t meeting expectations, or you simply want to pursue a new direction. Terminating a franchise agreement may seem like the logical step. However, this process requires more than just a signature under Dutch law. Recent research shows that 73% of franchise conflicts arise because parties don’t understand the proper termination procedures required in the Netherlands.
Moreover, terminating franchise agreements often brings unexpected financial consequences. Since the Dutch Franchise Act came into effect, franchisors must pay goodwill compensation to their franchisees. This article provides you with a practical roadmap for correctly terminating your franchise partnership under Dutch law, helping you avoid costly mistakes.
Why is Correctly Terminating a Franchise Agreement so Crucial Under Dutch Law?
Terminating a franchise agreement without proper knowledge can lead to significant problems in the Netherlands. Therefore, it’s essential to seek professional advice from a specialized Dutch attorney. This way, you prevent the termination from resulting in unnecessary conflicts and unforeseen costs under Dutch law.
How Can You Terminate a Franchise Agreement in the Netherlands?
There are two main routes to terminate your franchise agreement under Dutch law:
- Termination of the franchise agreement
- Dissolution of the franchise agreement
What Does Termination of a Franchise Agreement Involve?
With termination, the notice period plays a crucial role in Dutch franchise law. Suppose your contract contains a three-month notice period. Then you can terminate the franchise agreement by giving notice, provided you respect the three-month term as required under Dutch law.
What Happens When No Notice Period is Specified?
If a notice period is missing from your franchise agreement? Then the situation becomes more complex under Dutch law. The difference between a fixed-term versus indefinite-term agreement determines your options in the Netherlands.
How Do You Terminate a Fixed-Term Franchise Agreement?
Fixed-term franchise agreements without interim termination options usually cannot be terminated early under Dutch law. A five-year franchise agreement thus normally ends after five years. Interim termination may result in damages or legal enforcement of continuation according to Dutch legal principles.
How Do You Terminate an Indefinite-Term Franchise Agreement?
Indefinite-term franchise agreements are generally terminable under Dutch law, even without an explicit notice period. The appropriate notice period depends on various factors, such as collaboration duration and investments made. Approximately 41% of franchisees underestimate this complexity under Dutch law, leading to legal problems.
The risk exists that you apply too short a notice period, making you liable for damages. Specialist advice from a Dutch attorney is therefore indispensable.
When Can You Dissolve a Franchise Agreement Under Dutch Law?
Dissolution forms an alternative termination route when your contractual partner fails to comply with the franchise agreement. However, you must first give your contractual partner the opportunity to remedy errors under Dutch law. Only when they are in default can you proceed with dissolution.
Practical Example: Suppose you own a successful coffee chain in the Netherlands and one of your franchisees repeatedly fails to meet quality standards. Customers complain about poor service and outdated equipment. After multiple warnings and a formal notice of default, improvement remains absent. In this situation, you can dissolve the franchise agreement for breach of contract under Dutch law, provided you have correctly followed all legal steps with guidance from a Dutch law firm.
What are the Consequences of Terminating a Franchise Agreement?
Usually, mutual obligations end upon termination under Dutch law. Franchisors no longer need to pay fees, while franchisees must return property belonging to the franchisor. Related agreements, such as lease contracts linked to the franchise agreement, also typically end automatically in the Netherlands.
However, certain agreements continue after termination, including confidentiality clauses, non-compete clauses, and goodwill compensation under the Dutch Franchise Act.
What Requirements Apply to Non-Compete Clauses Under Dutch Law?
The Dutch Franchise Act imposes strict requirements on non-compete clauses. The clause may only relate to goods and services within the geographical area where the franchisee was active in the Netherlands. Additionally, you can only invoke non-competition when this is truly indispensable for protecting provided know-how under Dutch law.
Furthermore, a maximum duration of one year after termination of the franchise agreement applies to non-compete clauses in the Netherlands.
What is Goodwill Compensation After Termination?
With the new Dutch Franchise Act, franchisors are obligated to make agreements about goodwill determination. Research shows that 68% of franchisors were initially insufficiently prepared for this new obligation under Dutch law.
You must jointly determine:
- Whether goodwill exists in the franchisee’s business
- What scope the goodwill compensation has
- To what extent the goodwill compensation belongs to the franchisee or franchisor
Goodwill attributable to a franchisee arises, for example, through building a large customer base or training skilled personnel in the Netherlands.
What Does the Transition Period of the Dutch Franchise Act Mean?
A transition arrangement applies to existing franchise agreements under Dutch law. Agreements that already existed on January 1, 2021, had to contain a goodwill provision by January 1, 2023, at the latest. Non-compete clauses also had to be adapted to the Dutch Franchise Act before that date, otherwise they become void under Dutch law.
How Do You Professionally Terminate a Franchise Agreement in the Netherlands?
A correct termination letter forms the basis of every successful termination under Dutch law. Studies indicate that 52% of termination letters contain legal defects that lead to complications in the Netherlands.
Want to ensure your termination letter meets all requirements under Dutch law? Then engage professional legal help from a Dutch attorney. Experienced Dutch law firms help you draft a watertight letter, so you won’t face unpleasant surprises later.
Dutch specialist for franchise agreements
Terminating a franchise agreement in the Netherlands requires careful preparation and legal expertise in Dutch law. By following the correct procedures and seeking professional advice from a Dutch attorney, you avoid costly mistakes and conflicts. Therefore, invest in specialist advice from a Dutch law firm – it ultimately saves you time, money, and legal headaches under Dutch law.
