Statutory commercial interest in the franchise relationship

In daily practice, payment arrears often give rise to legal disputes. The financial damage caused by non-payment or late payment is considerable, and the government recognized this a few years ago with new legislation. Until December 2002, the law only knew one statutory interest rate: that from Section 6:119 of the Dutch Civil Code (BW). This regulation has been expanded and since December the law has made a distinction between the ‘ordinary’ statutory interest and the new statutory ‘commercial interest’, which is included in Section 6:119a of the Dutch Civil Code. The statutory commercial interest is an interest that is specifically intended to prevent financial damage due to payment arrears in professional commercial transactions.

This legal commercial interest is composed by the European refinancing rate, increased by no less than 7 percentage points. As a result, the commercial interest rate is currently 10.58%. By way of comparison, the ‘ordinary’ statutory interest rate as of 1 January 2007 is 6%.

When does the commercial interest rate apply?

Commercial interest applies to debts arising from trade agreements. These are agreements in which one party provides a service or good to the other party, who pays a fee for it, such as in franchise agreements. The commercial interest is emphatically not applicable to agreements entered into with consumers.
If no arrangement has been agreed for payment of invoices, the statutory commercial interest is generally due after the thirtieth day after the invoice date. If a final day of payment has been agreed, then the statutory interest is due after the final day of payment has expired.

As an example, the franchisor provides goods to a franchisee. The parties have agreed that invoices must be paid within 14 days. The invoice will only be paid after 40 days. This means that the franchisee owes interest (10.58%) over 26 days.

Conclusion

Given the level of the interest rate, it may be advisable to align franchise agreements or general terms and conditions with the statutory commercial interest. After all, under application of the statutory commercial interest, the invoice amount can increase considerably in the event of late payment. If the franchisee does not agree with the content of an invoice, it is certainly advisable to complain to the franchisor in good time.

Ludwig & Van Dam franchise attorneys, franchise legal advice