A franchise agreement is an agreement in which an intensive cooperation is entered into between two independent parties, the franchisor and the franchisee. The period before the parties actually enter into the agreement is referred to as the pre-contact phase. In this phase, the parties enter into negotiations. The Franchise Act prescribes what information the franchisor must provide to the intended franchisee. In addition, the franchisor must give the franchisee at least four weeks the opportunity (standstill period) to absorb the information and, if desired, conduct further investigation, whether or not by seeking advice. During this period, the franchisor may not enter into the franchise agreement or related agreements. The franchisor is also not allowed to encourage the franchisee to make payments or investments related to the franchise agreement that has yet to be concluded.
The idea behind the pre-contractual information obligations is that the franchisee should be able to make a well-considered choice when entering into the franchise agreement. It is important that the franchisee is well informed by the franchisor. At the same time, the franchisee should not get the impression that he cannot go back, for example because certain agreements or investments have already been made. Violations of pre-contractual obligations are subject to severe sanctions. For example, failure to observe the standstill period may lead to the voidability of the franchise agreement.
It is recommended to set up the pre-contact phase properly with safeguards that can be used to demonstrate afterwards when which information was provided. This can be guaranteed, for example, by providing a pre-contractual information document (PID), whether or not in combination with a separate pre-agreement.
Subsequently, the parties may enter into the actual franchise agreement. The franchise agreement describes and defines the rights and obligations of both the franchisor and the franchisee in detail. For example, the rights of the franchisor with regard to the trade name, logos and the like will be described and protected. Furthermore, the franchise agreement will always contain provisions relating to the obligations of the franchisee. The franchisee will have to implement the franchise concept according to certain guidelines so that the concept is operated in the most successful manner. This is in the interest of both the franchisor and the franchisee. In the franchise agreement you will also find provisions regarding a handbook, and (possible) purchase obligations, an exclusive territory, fees and the duration of the agreement, et cetera. The terms of the franchise agreement can differ materially per type of franchise. The attorneys of Ludwig & Van Dam franchise attorneys have a great deal of experience in assessing and drafting franchise agreements in all industries and are able to provide tailor-made solutions for every (starting or experienced) franchisor or franchisee like no other.