Belgian Franchise Law Goes into Effect

Belgium's new franchise law (the "Law"), which was the subject of several legislative delays during 2005, has now been formally adopted. Originally, the Law was set to go into effect as of September 1, 2005; however, on January 23, 2006, a Decree published in the Belgian Official Gazette notified the public that the Law had been amended to establish an initial effective date of February 1, 2006.

The Law, which covers franchises and similar relationships under the umbrella of "commercial partnerships", requires franchisors to deliver a written disclosure document, accompanied by a hard copy of the franchise agreement, to a franchise prospect at least one month before the earlier of (i) the execution of an agreement or (ii) the payment of any consideration by the franchisee. The disclosure document must contain two sections, one summarizing the primary terms of the franchise agreement and the other providing information allowing the franchisee to correctly evaluate the commercial partnership agreement. The information which must be disclosed includes, among other things, (a) the history and experience of the franchisor; (b) franchisor's financial statements for the previous three years; (c) the mode of calculating remunerations to be paid under the agreement; (d) the duration of the agreement; (e) the terms and conditions for renewal; (f) circumstances under which the agreement may be terminated; (g) exclusive rights granted under the agreement; (h) non-competition restrictions (including duration and conditions of those restrictions); (i) franchisee's obligations and consequences of failing to fulfill those obligations; (j) franchisee's purchase options or rights of pre-emption and the method for valuing the business; (k) intellectual property rights granted under the agreement; (l) the franchisor's market share; (m) details of the store or other business to be operated under the agreement; (n) the number of franchisees participating in the system; and (o) the number of new franchise agreements signed and the number of franchise agreements terminated or not renewed upon expiration during the past three years.

Under the Law, a franchisee who does not receive disclosure in accordance with the Law's requirements may have the franchise agreement declared null and void at any time within two years following execution of the agreement. The Law also provides that any agreement terms not properly described in the disclosure document will not be enforceable against the franchisee. The Law requires that disclosure be provided in a clear and comprehensible manner and provides that ambiguities will be resolved in favor of the franchisee. The Law also imposes a duty of confidentiality on the parties with regard to information disclosed in the process of attempting to conclude a franchise or other commercial partnership agreement.

Ryan Whitfill is an associate in the Franchise and Distribution Practice Group of Haynes and Boone, LLP. He can be reached by e-mail at ryan.whitfill@haynesboone.com.

Published: October 25th, 2006

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