What has changed?
The term “essential contractual provisions” clarified
Art. X. 28 §1 of the Code of Economic Law stipulates that “the person who grants the right” (the franchisor) must provide information about “essential contractual provisions”, as one part, and “information for the correct evaluation of the commercial cooperation agreement,” as the other part.
The new law drastically amends the first part, the term “essential contractual provisions”. What are considered to be crucial provisions of the contractual relationship are now specified in detail, which therefore clarifies what information the franchisor must provide.
Before, Art. X.28 §1, 1° of the Code of Economic Law required that information about “obligations” and “consequences of non-compliance of the obligations” (among others) be provided. This often resulted in the PID’s inclusion of virtually every contractual provision verbatim, which defeated the purpose of the PID, that is, to highlight the essential contractual aspects to the franchisee before it enters into the franchise agreement.
The law reform therefore aims to have the PID effectively serve as a document that raises ‘red flags’ and is not merely a citation of the contractual clauses.
New obligations to provide information
The new law moreover introduces new obligations to provide specific types of information:
- The costs at the start of the franchise or recurring costs, such as marketing, IT software and systems, transport, training at the expense of the party that obtains the right, and the conditions for amending them;
- The obligations relating to applying maximum prices;
- The obligations relating to the minimum turnover and minimum purchase and the consequences of not attaining them;
- The restrictions on the use of intellectual property rights;
- The restrictions on gaining access to and using client data by the party obtaining the right during and after the contract term;
- The restrictions relating to online sales and online promotion;
- The clauses on the inter-relationship and interdependence between the commercial cooperation agreement and the commercial tenancy agreement or any other contract relating to the operation of the establishment;
- The clauses on jurisdiction, legal forum, and language of the proceedings.
Generally, the existing obligations to provide information have been retained and, if necessary, expanded as well. For example, you must soon stipulate in the PID the consequences of breaches of a non-competition clause, together with the information about the termination of the contract and the financial consequences associated with that.
The franchisor must mention the new information not only in the PID as part of the new franchise agreement that you will conclude as from the date the law enters into force but also in the simplified PID if any changes are made to ongoing franchise agreements or if they are renewed.
Entry into force and sanctions
The new law will come into effect six months after it has been published in the Belgian State Gazette.
This law reform is significant. If any of the required information is missing in the PID or simplified PID, the franchisee can invoke nullity of the agreement. In an earlier newsletter, we emphasized the financial risk that the franchisee would bear as a result of the contract annulment.
If you must draw up a PID for the purpose of entering into a franchise agreement or similar commercial cooperation agreement, or if you are given a PID from your future contracting party, feel free to contact Charles Claeys or your usual contact person at Monard Law.
