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The Belgian Parliament recently enacted a franchise law requiring
franchisors to give a pre-sale disclosure document to prospective
franchisees. Belgium becomes the latest country to join the disclosure
club, following China’s adoption of a disclosure requirement
within the past year.
New Law Is Extremely Broad
The scope of the new law is extremely broad. It applies to all
“commercial partnership agreements,” which are defined
as “agreements made between two persons, each of whom acts
in its own name and on its own account, by which one of the persons
grants to the other, in consideration for remuneration of any nature
whatsoever, whether direct or indirect, the right to use in the
selling of products or the provision of the services, a commercial
formula falling within one or more of the following forms”:
- a common sign or brand;
- a common commercial name;
- a transfer of know-how; or
- commercial or technical assistance.
May Cover Arrangements Not Commonly Regarded as Franchises
In light of this definition, it may well be that many license agreements,
distribution agreements, and similar arrangements that are not commonly
thought to be franchise agreements will be subject to the new law.
Pre-Sale Disclosure Requirements
If the law is applicable, the franchisor must provide a disclosure
document to the prospective franchisee at least 30 days before any
agreements are signed or any payment is made. The disclosure document
must be organized into two sections. The first section must summarize
the main provisions of the franchise agreement, such as the method
of calculating royalties, the consequences of the franchisee’s
failure to comply with its obligations, conditions of renewal, reservation
of rights by the franchisor, non-competition restrictions, and the
particulars of the franchisor’s right of first refusal (if
any).
The second section must provide extensive detail that “evaluates”
the franchise agreement. This requires disclosure of the following
information, among other items:
- The history, state, and “perspectives of the market,”
including market share information, from both a local and general
point of view;
- The history and experience of the franchise system;
- The intellectual property rights being granted, including the
prior commercial experience relating to the intellectual property;
- Three years of data about the number of units in Belgium and
elsewhere, and three years of data about units opened, terminated,
and not renewed; and
- Perspectives on the expansion of the system.
Failure to comply with the law may result in the entire agreement,
or certain provisions of the agreement, being unenforceable.
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BELGIUM
ADOPTS FRANCHISE LAW
