Franchise agreements: extension of information obligations soon to take effect

Franchise agreements and other forms of commercial cooperation fall under specific legislation. The legislator aims to provide a clear framework for the pre-contractual phase to promote cooperation and protect the economically weaker party. Since 2005, it is required in Belgium to follow a pre-contractual information protocol before a commercial cooperation agreement can be concluded.

This protocol, which must be provided to the contractor at least one month before signing, consists of two components:

• The draft agreement.

• The pre-contractual information document (PID).

It is this last element, the PID, that has been expanded by the legislator in Article X.28 of the Code of Economic Law.

Expansion of the pre-contractual information document (PID)

The clarification and expansion of the PID is intented to explicitly highlight important, often legal, agreements to the franchisee. The legislator wants to ensure that the economically weaker party is well informed about the consequences of the agreement they are entering into.

The new mandatory disclosures in the PID include, among other things:

• The duration of the commercial cooperation agreement, the conditions for renewal and termination, and the financial consequences thereof, particularly concerning costs and investments.

• The startup or recurring costs such as marketing, IT, transportation, and training borne by the party acquiring the rights, as well as the conditions for changes to these costs.

• The non-compete clauses, their duration, the conditions, and the consequences of non-compliance.

• The obligations regarding the enforcement of maximum prices.

• The obligations related to minimum turnover and minimum purchase requirements, and the consequences of not meeting these requirements.

• …

Failure to comply with these pre-contractual information obligations can have serious consequences. In the event of a violation of the law, the franchisee can invoke the nullity of the agreement.

Our legal team is ready to assist you and your business through this legislative change and is available to advise or help with the drafting of commercial cooperation agreements.