Legal obligations of the franchisee

The position of the franchisee under the Franchise Act

The franchisee is an independent entrepreneur who commits to the franchisor's formula. This commitment entails rights, but also obligations. The Franchise Act (Article 7:911 et seq. of the Dutch Civil Code) has strengthened the position of the franchisee on a number of points, particularly in the pre-contractual phase, regarding changes to the formula, and upon termination. At the same time, the franchisee remains bound by the agreements in the contract and by their own duty of due diligence. Understanding these rights and obligations is essential to be well-prepared.

Who do we work for?

We assist prospective franchisees considering joining a franchise system, existing franchisees who want to know what their obligations are and what rights they have, and franchisees who come into conflict with their franchisor regarding the interpretation of the agreement or compliance with the law. We review the agreement, explain the rights and obligations, and advise on the position in the event of disputes.

The mutual duty of care

Article 7:912 of the Dutch Civil Code imposes a duty of care on both the franchisor and the franchisee: the parties conduct themselves towards each other as befits a good franchisor and a good franchisee. For the franchisee, this means, among other things, that they actively keep themselves informed, loyally implement the formula, and notify the franchisor of relevant developments in a timely manner. The mutual duty of care shapes the entire relationship and plays a role in virtually every dispute.

The duty of investigation in the pre-contractual phase

Although the Franchise Act has increased the franchisor's duty to provide information, this does not negate the franchisee's own duty of investigation. The prospective franchisee must critically assess the information provided, conduct their own research into the local market and financial feasibility, and, if necessary, seek expert advice. The four-week standstill period is specifically intended to allow for this assessment. The relationship between the franchisor's duty to provide information and the franchisee's duty of investigation is often decisive in disputes.

Obligations during the term

During the term of the agreement, the franchisee is bound by the provisions in the contract and the manual: operation in accordance with the formula, purchasing and quality requirements, payment of fees, confidentiality, and cooperation with quality controls. However, these obligations may not conflict with mandatory law: for instance, a non-compete clause during the term may not be unreasonably broad, and the franchisor may not unilaterally make significant changes to the formula without the legally required consent.

The rights and protection of the franchisee

Opposite these obligations stand rights. The franchisee is entitled to timely and complete pre-contractual information, to at least annual consultation, to consent regarding substantial changes to the formula (Article 7:921 of the Dutch Civil Code), to a goodwill arrangement upon termination of the agreement (Article 7:920 of the Dutch Civil Code), and to protection against an overly broad non-compete clause. Provisions in the agreement that deviate from mandatory legal protection to the detriment of the franchisee are void or voidable to the extent provided by law.

Our working method

We review the franchise agreement and clearly explain your obligations and rights. Before signing, we review the agreement and the pre-contractual information and point out key considerations. During the term, we advise on the interpretation of obligations and your rights regarding amendments or disputes. In the event of a conflict, we determine the most effective course of action.

The franchisee's financial disclosure obligation

The Franchise Act imposes a pre-contractual duty of information not only on the franchisor but also on the franchisee. Pursuant to Article 7:913, paragraph 2 of the Dutch Civil Code, the prospective franchisee must provide the franchisor with timely information regarding their financial position that is reasonably relevant to the conclusion of the agreement. In practice, this concerns insight into your equity, financing options, and your ability to bear the required investments. Withholding or misrepresenting this information may be held against you later. We advise franchisees, ranging from start-ups to enterprises wishing to open multiple branches, to provide this information carefully and verifiably.

The non-compete clause after termination of the agreement

A common point of contention is the non-compete clause that continues to take effect after the termination of the franchise agreement. Article 7:920 paragraph 2 of the Dutch Civil Code imposes strict requirements on this: the clause must be recorded in writing, it may relate exclusively to goods or services that compete with those of the franchise, it must be indispensable to protect the transferred know-how, it is limited to the territory within which the franchisee has operated the formula, and it may apply for at most one year after the termination of the agreement. A post-contractual non-compete clause that exceeds these limits is void. We assess whether such a clause holds up and what it means for your future entrepreneurial freedom. See also our page on non-compete clauses within franchising.

The goodwill arrangement at the end of the agreement

At the end of the franchise agreement, the franchisee may claim compensation for accrued goodwill. Pursuant to Article 7:920 paragraph 1 of the Dutch Civil Code, the agreement must specify whether and to what extent goodwill accrues to the franchisee, how it is determined, and the manner in which it is compensated to the franchisor upon the transfer of the business. For a franchisee who has spent years building up a location, this is a substantial right that is often insufficiently elaborated in the contract. We assist with the assessment and, if necessary, the determination of the goodwill, including during the sale of the franchisee business.

Part of Franchise Legal Advice

The legal obligations and rights of the franchisee form one part of our broader Franchise Legal Advice. Within this team, lawyers and in-house counsel work together for clients ranging from internationally operating franchise systems to the baker on the corner considering becoming a franchisee for the first time. In addition to the position of the franchisee, we also advise on the legal obligations of the franchisor, pre-contractual forecasting , and the review of franchise agreements. In this way, we always view your obligations in conjunction with the complete legal picture surrounding your franchise system.