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The Franchise Act has profoundly changed the franchise landscape. It grants franchisees new rights on four main points: a pre-contractual duty to provide information, a right of consent regarding significant changes, a goodwill arrangement, and limits on the non-compete clause. The rules also apply to existing agreements.
1. Pre-contractual duty to provide information
The franchisor must inform the prospective franchisee in a timely and complete manner before the conclusion of the agreement, including regarding the finances and the franchise formula. A cooling-off period (standstill) applies during which no pressure to sign or invest may be exerted, so that the franchisee makes a well-considered choice.
2. Right of consent regarding amendments
For substantial changes to the formula or decisions with major consequences for the franchisee, the consent of the franchisees is required above a certain threshold. This prevents the franchisor from unilaterally imposing heavy burdens.
3. Goodwill arrangement
The parties must specify in the agreement how the goodwill is determined and to what extent it accrues to the franchisee upon termination. This prevents disputes regarding the value built up by the franchisee.
4. Limits to the non-compete clause
A non-compete clause after expiration is only valid if it is in writing, indispensable for the protection of know-how, limited in duration (in principle at most one year), and applies to the territory in which the franchisee was active.
Please note: also for existing contracts
The law also applies to existing franchise agreements; there was no generous transition period for various components. Therefore, review your current contracts against the requirements of the law and amend them where necessary.
Frequently Asked Questions
What changes due to the Franchise Act?
Four main points: duty to inform, right of consent, goodwill arrangement, and limits to the non-compete clause.
Does the law also apply to my existing contract?
Yes. Various parts of ongoing agreements had to be adapted to the law.
For whom does the protection apply?
Especially for the franchisee, but the franchisor as well must have their information and contracts in order.
Getting your franchise in order?
Our legal experts review and draft your franchise agreement in accordance with the Franchise Act. View our franchiseteam or schedule a free consultation.
