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Since 1 January 2021, the offer and sale of franchises in the Netherlands is governed by Title 7.16 of the Dutch Civil Code (Burgerlijk Wetboek, articles 7:911-7:922 DCC). Before signing, the franchisor must give the prospective franchisee specified information at least four weeks in advance (article 7:914 DCC). Franchisees established in the Netherlands cannot contract out of this protection (article 7:922 DCC).
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What is franchising under Dutch law?
Dutch Franchise Agreement & Formula
The rules were introduced by the Dutch Franchise Act (Wet franchise) of 1 July 2020, which added a new Title 16 to Book 7 of the Dutch Civil Code. The Act does not define “franchise” as such, but it does define the franchise agreement, the franchise formula, the derived formula, the franchisor and the franchisee (article 7:911 DCC).
A franchise agreement, under article 7:911(1) DCC, is:
- An arrangement where the franchisor, for a fee, confers upon the franchisee both the privilege and duty to employ a franchise formula.
- This formula is for the production, sale of goods, or furnishing of services in a manner delineated by the franchisor.
A franchise formula, as defined in article 7:911(2)(a) DCC, is:
- A commercial, operational, and organizational method for goods’ production or sale or service delivery.
- This method is central to maintaining a cohesive image and identity across franchise enterprises in a chain.
- It includes in any case (1) a trademark, design, trade name, house style or drawing, and (2) know-how: practical information not protected by an intellectual property right, resulting from the franchisor’s experience and research, which is secret, substantial and identified.
How did Dutch franchise legislation develop?
Genesis of the Dutch Franchise Code
Before the Act, the sector tried self-regulation. After consultations started by the Ministry of Economic Affairs in 2014, a committee from the sector drafted the Dutch Franchise Code (Nederlandse Franchise Code), which was presented to the Minister on 17 February 2016. In the course of 2016 it became clear that the sector was unable to implement the code voluntarily across the board (Explanatory Memorandum, Parliamentary Papers II 35392, no. 3).
Why was the Dutch Franchise Act introduced?
In April 2017, a preliminary draft bill was put to consultation that would have made the code binding on a “comply or explain” basis. After the consultation, the government coalition agreement opted instead for formal legislation on franchising.
The Act was adopted on 1 July 2020 (Bulletin of Acts 2020, 251) and entered into force on 1 January 2021 (Bulletin of Acts 2020, 493). For franchise agreements concluded before that date, articles 7:920 and 7:921 DCC (goodwill, non-compete and consent to changes) apply two years after that date, so from 1 January 2023 (article 209 Transitional Act for the new Civil Code).
Which requirements does the Act impose?
Besides the disclosure rules discussed below, the Act requires consent for certain changes. If the franchisor intends, on the basis of a clause in the franchise agreement, to change the franchise formula, or to operate a “derived formula”, and this requires an investment, new or higher fees or other costs from the franchisee, or is expected to reduce its turnover, above a level set in the franchise agreement, it needs the prior consent of a majority of the franchisees established in the Netherlands, or of each franchisee affected (article 7:921(1) DCC). If the agreement sets no such level, consent is always required (article 7:921(2)). A derived formula (afgeleide formule, article 7:911(2)(b) DCC) is a formula that:
- Ensures a standardized identity and image.
- Aligns with the franchise formula on certain distinguishable facets identifiable to the audience.
- Is used by the franchisor, directly or through third parties, for goods or services that are wholly or largely the same as those covered by the franchise formula.
The franchisor and the franchisee must behave towards each other as a good franchisor and a good franchisee (article 7:912 DCC). The franchisor must provide the assistance and the commercial and technical support that can reasonably be expected given the nature of the formula; if the franchisee needs a particular form of support, the parties consult on it (article 7:919 DCC).
The franchise agreement must also regulate how goodwill is established and compensated when the franchisor takes over the franchisee’s business at the end of the agreement (article 7:920(1) DCC). A post-term non-compete clause is only valid if it is in writing, covers only competing goods or services, is indispensable to protect the franchisor’s know-how, lasts no longer than one year and is limited to the area in which the franchisee operated the formula (article 7:920(2)).
Who can act as a franchisor?
Under the Act, a franchisor is a natural person or legal entity that owns or is entitled to use a franchise formula and, in the course of its business, grants others the right to exploit it (article 7:911(2)(c) DCC). Title 7.16 does not require a licence or registration before franchises are offered. It does require a complete disclosure package, a four-week standstill period, and clauses on goodwill and any non-compete in the agreement (articles 7:913, 7:914 and 7:920 DCC). Careful selection of franchisees remains important for the reputation of the chain.
What must a franchisor disclose before the franchise agreement is signed?
The franchisor must provide the prospective franchisee in good time with (article 7:913(2)-(4) DCC): the draft franchise agreement with annexes; the rules on fees, mark-ups, other financial contributions and required investments; information on consultation with franchisees, on the extent to which the franchisor may compete with the franchisee (including through a derived formula) and on the franchisee’s access to turnover data; where available and reasonably relevant, the franchisor’s financial position and financial data for the intended location or comparable businesses; and all other information it knows or should suspect is relevant to the decision.
The information must be provided in a way that keeps it accessible for future reference, and must be formulated so that the prospective franchisee can reasonably make a well-considered decision (article 7:917 DCC).
Conversely, the prospective franchisee must inform the franchisor in good time about its financial position, as far as reasonably relevant for concluding the agreement (article 7:913(1) DCC). Within the limits of reasonableness and fairness, it must also take the necessary measures to avoid concluding the agreement under the influence of incorrect assumptions (article 7:915 DCC), for example by seeking advice.
Standstill period: The information must be provided at least four weeks before the agreement is concluded. During that period, the franchisor may not change the draft agreement to the franchisee’s detriment, may not conclude the franchise agreement or an inseparably connected agreement (except a confidentiality agreement), and may not induce the franchisee to make payments or investments related to it (article 7:914(1) and (2) DCC). These rules do not apply to a subsequent franchise agreement for the same formula between the same parties, or between the franchisor and a subsidiary or group company of the franchisee (article 7:914(3)).
What happens if information is withheld?
Title 7.16 does not set a specific sanction for incomplete or late disclosure. A franchisee that concluded the agreement on the basis of incorrect or missing information may rely on general contract law, for example annulment for error if the other conditions are met (article 6:228 DCC), or a claim for damages, depending on the circumstances.
For franchisees established in the Netherlands, the rules of Title 7.16 cannot be set aside to their detriment, whatever law governs the franchise agreement; a clause contrary to article 7:920 (goodwill and non-compete) is void (article 7:922 DCC). For other deviations, the general rule applies that breach of a mandatory provision protecting only one party in principle makes the clause voidable, unless the purpose of the provision implies otherwise (article 3:40(2) DCC). A voidable clause is annulled by an extrajudicial declaration or by a court judgment (article 3:49 DCC).
Competition law: Franchise agreements must also comply with competition law. Article 6(1) of the Dutch Competition Act (Mededingingswet) prohibits agreements that restrict competition on the Dutch market; such agreements are void by law (article 6(2)). The prohibition does not apply if the exemption criteria of article 6(3) are met, to minor agreements within the thresholds of article 7, or to agreements covered by an exemption regulation as referred to in articles 12 and 13 (article 6 Competition Act). Clauses on resale prices, territories, purchasing obligations and non-competes therefore need a separate review, which may also involve EU competition rules.
Frequently asked questions about the offer and sale of franchises in the Netherlands
Is there a franchise act in the Netherlands?
Yes. The Dutch Franchise Act (Wet franchise) of 1 July 2020 added Title 7.16 to the Dutch Civil Code (articles 7:911-7:922 DCC). It has applied since 1 January 2021; for agreements concluded earlier, the rules on goodwill, non-compete and consent to changes (articles 7:920 and 7:921) apply from 1 January 2023 (article 209 Transitional Act for the new Civil Code).
What do I need to become a franchisor in the Netherlands?
Title 7.16 requires no licence or registration. You need a franchise formula that you own or may use (article 7:911(2)(c) DCC), a disclosure package as described in article 7:913, a standstill period of at least four weeks before signing (article 7:914), and a franchise agreement that regulates goodwill and contains any non-compete clause in writing within the limits of article 7:920.
How long is the waiting period before signing a Dutch franchise agreement?
At least four weeks after the franchisor has provided the required information. During that period the franchisor may not change the draft to the franchisee’s detriment, conclude the agreement or induce payments or investments (article 7:914(1) and (2) DCC). The period does not apply to a subsequent agreement for the same formula between the same parties or with a group company of the franchisee (article 7:914(3)).
Does Dutch franchise law apply if the agreement is governed by foreign law?
For franchisees established in the Netherlands, yes: the rules of Title 7.16 cannot be set aside to their detriment, regardless of the law governing the franchise agreement, and a clause contrary to article 7:920 is void (article 7:922 DCC).
Can a franchisor change the franchise formula without the franchisees’ consent?
Not always. If a change made under a clause in the agreement, or the use of a derived formula, requires investments, fees or costs from the franchisee, or is expected to reduce its turnover above the level set in the agreement, the franchisor needs prior consent from a majority of its franchisees established in the Netherlands or from each franchisee affected. Without such a level in the agreement, consent is always required (article 7:921 DCC).
Primary sources
- Dutch Civil Code, Book 7, Title 16 (franchise): Articles 7:911, 7:912, 7:913, 7:914, 7:915, 7:917, 7:919, 7:920, 7:921 and 7:922
- Dutch Civil Code: Articles 3:40, 3:49 and 6:228
- Dutch Franchise Act (Wet franchise) of 1 July 2020, Bulletin of Acts 2020, 251; entry into force 1 January 2021: Bulletin of Acts 2020, 493
- Transitional Act for the new Civil Code (Overgangswet nieuw Burgerlijk Wetboek), article 209
- Explanatory Memorandum to the Franchise Act, Parliamentary Papers II 35392, no. 3
- Dutch Competition Act (Mededingingswet), article 6
How can a Dutch franchise lawyer help?
If you have any questions or require legal assistance regarding the offer and sale of franchises in the Netherlands, please don’t hesitate to reach out to our knowledgeable and dedicated team at our Dutch law firm.
