Franchisors, beware: the precontractual information document contents are subject to changes – again

Franchisors have the obligation to provide a draft contract and a separate document containing specific information to the franchisee at least one month before the signing of the franchise agreement. This separate document is known as the PID (precontractual information document).

The substantive requirements of the PID were amended (once again) by a Royal Decree that was published in the Belgian State Gazette on 11 September 2024.

Previous major amendments

In one of our last newsletters, we talked about an earlier legislative reform of the substantive requirements of the PID. At that time, the PID was redesigned to serve as a “red-flag document” that would draw the franchisee’s attention to specific contractual clauses that have potentially significant impact. These new rules entered into force on 1 September 2024.

 

PID to be adapted to new rules as from 1 March 2025

The new Royal Decree now imposes an extra obligation on the franchisor to provide more information to the franchisee. In concrete terms, the PID must contain the these types of new information:

  • Any potential expansion plans that the franchisor could have;
  • Any potential expansion plans that competitors in the sector could have;
  • Information about typical investments, including an estimate of the sums of money that should be invested;
  • An estimate of the income and expenses for a minimum period of three years.

The franchisor must also inform the franchisee about any existing arrangements concerning exclusive rights. This is mainly about the possibility (or impossibility) for the same or similar products or services to be sold under the same brand or trade name in shops within the franchisee’s sector.

In short, the legislature wants the franchisees to be informed about not only the contractual clauses of the agreement but also adequate economic and financial data so that they can assess their business case properly.

 

The obligation to provide information applies to all forms of commercial cooperation agreements

The obligations to provide information apply not only to franchise agreements but also all forms of “commercial cooperation agreements.” There is a commercial cooperation agreement if one of the parties to the contract grants the other party the right to use a business model or commercial formula for the sale of products of for the provision of services. Specific elements such as a signboard for communal use or trade name, a transfer of know-how, any commercial or technical assistance, or a mix or all of these elements together, are considered a “commercial formula,” according to the law.

You’ll probably notice immediately that the interpretation of these elements are not so clear in practice. Many types of cooperations (such as various types of distribution agreements or retail contracts) would therefore risk falling within the scope of the law’s application.

 

Effective date and sanctions

The new obligations to provide information apply to commercial cooperation agreements that are concluded after 1 March 2025 and to existing agreements that are renewed after this date.

It is important that the PID fulfil the substantive requirements. If some essential information are missing in the PID, the franchisee can seek nullity of the agreement. In the earlier newsletter, we emphasized the financial risk that a franchisor would bear if the franchise agreement were declared null.

If you are obliged to draw up a PID as part of the process of entering into a franchise agreement or another commercial cooperation agreement, or if you have received a PID from your future contracting party, feel free to contact Charles Claeys or your usual contact person at Monard Law. We’re here to assist you.

 

Authors: Charles Claeys en Sarah Bos

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