The new Franchise Act will come into force on 1 January 2021. This law will apply immediately to all franchise agreements concluded as from 1 January 2021. On a number of specific points existing franchise agreements will be subject to a transitional period. The aim of the law is to promote fairer business practices and better cooperation between franchisor and franchisee.
First, there will be a legal definition of terms such as franchise agreement, franchise formula and franchisor. If there is a franchise from a legal point of view, then the law applies and there can be no deviation from the legal provisions to the detriment of the franchisee. The position of the franchisee vis-à-vis the franchisor (often a larger party) is therefore strengthened.
Broadly speaking, the law has four parts:
- The pre-contractual exchange of information.
- The interim amendment of a current franchise agreement.
- The consultations between the franchisor and his franchisees.
- The termination of the franchise cooperation.The pre-contractual exchange of information: rules on the period prior to the conclusion of the franchise agreement. The aim is that potential franchisees can make an informed and timely decision as to whether or not to join a franchise formula.
The interim modification of a current franchise agreement: the franchisee must agree in advance (among other things) to a modification of the franchise formula. Modification of the formula may require substantial investment by franchisees. It may also have a negative impact on a franchisee’s turnover or profitability.
Termination of the franchise co-operation: inter alia, rules on the validity of a post-contract non-compete obligation. The agreement must clearly state how the value of the franchise establishment is determined when the franchise cooperation ends.
Consultation between the franchisor and its franchisees: this must take place at least once a year.
Are you an existing franchisor? If so, make sure that you amend your franchise agreement in accordance with the legal obligations in good time before the law comes into force.
