On 12 April 2017, the outgoing Minister of Economic Affairs published a bill which legally embeds the NFC. It is possible to respond to the bill until 25 May 2017. By legally embedding the NFC, the Minister wants to strengthen the position of franchisees and bring more balance to the interests of franchisees and franchisors.
Contents of the NFC
The NFC contains rules of conduct franchisors and franchisees must abide by when establishing, executing and terminating the franchise agreement. The NFC may be declared voluntarily applicable to the franchise agreement. It is only if the NFC is a part of the franchise agreement that its compliance may be sought from the court.
The Minister wants to strengthen the franchise relationship by giving the NFC a legal basis. Legally embedding the NFC means that the NFC changes from a non-binding regulation to an enforceable one, regardless of what the franchisor and franchisee have contractually agreed upon.
Obligation to perform to the best of one’s ability
The NFC contains clear obligations (to perform to the best of one’s ability) for both parties. For instance, the franchisor may only enter into agreement with a franchisee who, “after reasonable enquiry” has demonstrated to possess enough ability to operate the franchise “in a sound and responsible manner”. If, in hindsight, it turns out that this reasonable enquiry has not been carried out, this may be invoked against the franchisor in case of unsatisfactory performance of a franchisee. Furthermore, the franchisor has an aggravated duty of disclosure of information towards the prospective franchisee. Information on the financial position of the franchisor and other relevant information that may be of importance to a franchisee must be made available within a reasonable period prior to the conclusion of the franchise agreement. However, the NFC does not compel the franchisor to draw up an operating forecast. If the franchisor does draw this up, then naturally the forecast, based on the current legislation, may not be flawed. Moreover, the franchisor is obliged to do everything in its power to improve and further develop the franchise formula.
On the other hand, the prospective franchisee also has a duty to investigate of his own and must, therefore, examine whether the operation is feasible and whether the content of the given information is correct.
Franchisor and franchisee must take note of the NFC when entering into a franchise agreement to check which information must be provided or requested beforehand and assess what the consequences are of verifiable non-compliance with the obligations (to perform to the best of one’s ability).
Information
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