International franchising

What do you need to take into consideration?

 

Belgium

Since the introduction of the Commercial Partnership Act (in Dutch: Wet commerciële samenwerking), Belgium has had specific legislation for commercial forms of cooperation such as franchising. The Act lays down rules covering the pre-contractual phase. It stipulates, for example, that, at least one month before concluding the franchise agreement, the franchisor must provide the prospective franchisee with a draft of the agreement and with a separate document containing the essential contractual provisions and the socio-economic data. This period will enable the prospective franchisee to perform a thorough study of the proposal and, if necessary, to seek advice. During this period, no commitments may be entered into and no remuneration may be demanded or paid. The same period and duty of disclosure will in principle apply to a renewal of an agreement that was concluded for a definite period, to the conclusion of a new agreement between the same parties or to an amendment of an agreement that has already been in effect for at least two years.

The law requires the parties to draft all documents in clear and understandable language. In the event of a dispute, the interpretation most favourable to the franchisee will prevail. The law furthermore stipulates that the pre-contractual phase is governed by Belgian law and that the Belgian courts have jurisdiction if Belgium is the country where the franchisee predominantly performs the activity to which the agreement relates.

The law is mandatory in nature and therefore cannot be set aside by means of a contractual clause. If the law is infringed, the franchisee may invoke the nullity of the agreement within two years of its conclusion.

 

Germany

Germany has no specific franchise laws. However, German general law has a number of peculiarities that also apply to franchise agreements and are worth mentioning.

For example, the German Civil Code states that the provisions on standard terms and conditions may be applied in the event that the franchisor presents a standard franchise agreement in a take it or leave it manner to the prospective franchisee. The Civil Code states that all standard provisions must be reasonable and must not unreasonably prejudice the other party in violation of the requirements of good faith. If a standard clause does not meet these requirements, it is null and void.

It is also important to note that under German law the franchisee may under certain circumstances be regarded as a consumer. If the franchisee is not yet conducting a business at the time the agreement is concluded, it is considered a start-up (Existenzgründer). If the franchise agreement obliges the start-up to purchase goods from the franchisor on a regular basis, this is considered a consumer credit within the meaning of the law. As a result, the franchisee has the right to subsequently terminate the franchise agreement within fourteen days of signing it.

German law also stipulates that a franchisee is obliged to register its business under its own trade name in the trade register. A registration under the name of the franchisor is not sufficient and may not be used by the franchisee as a trade name. The name of the franchisee must always be clearly displayed next to that of the franchisor. If the parties fail to do so, the franchisor will also be regarded as the contracting party and may be sued directly.

 

France

In France there is no specific legislation on franchising. However, there is legislation which creates an obligation to provide information when entering into certain relationships, such as the relationship between franchisor and franchisee. The French Commercial Code requires that any party that makes a trade name or mark available to another person in connection with an obligation of exclusivity or quasi-exclusivity, must provide information to that other party.

The information must be provided at least 20 days prior to the conclusion of the agreement in the form of a pre-contractual information document. This document must among other things contain the following information: the most recent two balance sheets of the franchisor, information to assess the financial health of the franchise formula, the status of the national and local market in which the franchisee will be operating, the full list of franchisees and their contact details, the number of franchise agreements that ended in the previous year and the reason for this, the duration of the proposed agreement and the conditions for renewal, termination and transfer.

The purpose of this mandatory duty of disclosure is to enable the franchisee to make a considered decision. If the duties of disclosure are not complied with, the franchisee has the right to terminate the agreement and/or claim damages.

 

United Kingdom

The United Kingdom has no specific franchise legislation, which means that there is no legal obligation to, for example, provide pre-contractual information.

Although there is no legislation relating to franchising, the Code of Ethics of the British Franchise Association ("BFA") in practice is viewed as a very important document. Prospective franchisors are assessed against the Code of Ethics before they can become members of the Association. In order to be eligible for membership, franchisors must, put briefly, be able to prove that the franchise activities are profitable, that the franchisor is able to transfer knowledge and experience to the franchisee, that the franchisor acts ethically in areas such as advertising, recruitment and communication with the franchisee, and that the franchisor makes all relevant data, statistics and figures available to the prospective franchisees.

If a franchise organisation is not a member of the BFA, this may have a negative impact on its reputation and credibility. Membership is seen as a kind of hallmark for a well-performing franchise formula.