New pre-contractual disclosure requirements apply before entering into franchise agreements and other commercial cooperation agreements in Belgium.
Under Belgian Law, pre-contractual disclosure requirements apply to any agreement granting a right to use a commercial formula – whether it involves a common trade sign, a trade name, a transfer of know-how, or the provision of commercial or technical assistance. These rules apply when the beneficiary conducts its activities primarily on the Belgian territory. The classic example is a franchise agreement for a franchise to be operated in Belgium.
At least one month prior to signing the commercial cooperation agreement, the grantor of the right (e.g. franchisor) must disclose a draft of the agreement as well as a separate document containing certain pre-contractual information, also referred to as the “pre-contractual information document” or “PID”.
The PID must include (a) a series of important contractual provisions, listed in Article X.28, §1, 1°, of the Belgian Code of Economic Law (“CEL”), and (b) data that allows the beneficiary to properly assess the commercial partnership agreement.
| New Disclosure Requirements (Act of 9 February 2024)
By an Act of 9 February 2024 concerning various provisions in economic matters, the Belgian legislator has modified Article X.28 of the CEL and imposes additional disclosure requirements regarding the pre-contractual information that the person granting a right (e.g. franchisor) must communicate to the person receiving a right (e.g. franchisee) before entering into an agreement. In particular, the new provision requires franchisors and other parties granting rights under commercial partnerships to include more detailed information in the PID. This additional information is designed to ensure that the grantee has a comprehensive understanding of the agreement before entering into it.
Key information to be included now covers:
- Whether or not the commercial cooperation agreement is concluded with consideration of the person (this refers to the “intuitu personae”-character of the agreement);
- Provisions regarding the duration of the agreement and conditions for renewal and termination, including financial consequences, especially with regard to costs and investments;
- The direct remuneration that the grantee must pay, and the method for calculating indirect fees, including any revisions during or after the agreement;
- Start-up or recurring costs such as marketing, IT, transport, and training, and conditions for changes to these costs;
- Exclusivity reserved for the grantor of the right;
- Non-compete clauses, their duration, conditions, and consequences for non-compliance;
- Obligations regarding maximum prices;
- Obligations regarding minimum turnover and minimum purchases, and consequences for not meeting them;
- Restrictions on the use of intellectual property rights;
- Restrictions on access to and use of client data during and after the agreement;
- Restrictions on online sales and promotion;
- Pre-emption rights or purchase options for the right grantor and valuation rules when exercising these rights;
- Clauses about the relationship and dependency between the cooperation agreement and the lease or other agreements related to the business location;
- Reasons for explicit termination and financial consequences, especially for costs and investments;
- Jurisdiction clause, choice of law, and language of proceedings.
These additional requirements entered into force on 31 March 2024 and apply to all new franchise agreements and other commercial partnerships entered into from 31 March 2024 onwards. Amendments or renewals of existing agreements still in force after this date are also subject to these rules. However, less extensive disclosure requirements apply in case of an amendment to or renewal of an existing agreement that has been in force for more than two years.
Non-compliance of the above-mentioned disclosure requirements may result in the nullity of certain provisions or even the entire agreement.
| Additional Information Requirements and Clarifications (Royal Decree of 19 August 2024)
The Royal Decree of 19 August 2024 further extends and clarifies the list of pre-contractual information that must be included in the PID.
The Royal Decree adds a new paragraph to Article X.28, §1 of the CEL to better clarify which exclusions the grantor (e.g. franchisor) must disclose to the grantee (e.g. franchisee). The purpose of this amendment is to further inform franchisees about the competitive environment in which they will operate, by informing them of the exclusivities that the grantor reserves in an area close to that in which the franchise exercises its activities. This duty to inform relates to the sale of identical or similar goods or services.
The PID will henceforth also need to contain the following information:
- the information on the expansion plans of the grantor in the trading area, known at that time;
- the applications for an operating licence or an establishment licence submitted to the competent authorities for wholly or partly competing outlets in the trading area, if the regulations so provide and to the extent that this information is available;
- if it is common practice in the network covered by the agreement to make investments at regular intervals, the information on these investments, including an estimate of the amounts to be invested;
- an estimated operating account over a minimum period of three years so that the grantee can draw up his own operating account based on the model included as an annexe.
The Royal Decree clarifies that the exclusivity referred to above relates to the sale of identical or similar goods or services under the same sign or trade name in outlets located in the trade area of the grantee as defined by the grantor, and introduces a model of an estimated operating account.
The Royal Decree was published in the Belgian Official Gazette on 11 September 2024 and will come into force on 1 March 2025.
| Comment
These new pre-contractual disclosure requirements aim to protect recipients of commercial rights, such as franchisees, by ensuring they have a full understanding of the financial and operational commitments involved before entering into an agreement, but they also significantly increase the obligations, risks and liabilities for franchisors and other types of grantors of commercial partnerships in Belgium if they fail to adhere to these obligations. The question is whether these additional obligations are fully consistent with competition laws. It is also notable that these far-reaching obligations are imposed by Royal Decree, issued by a resigning government whose powers are limited to current affairs.
