12 July 2022

Standstill period with franchisee acquisition

Category: Franchise law

It has been just over a year since the Franchise Act entered into force. As a result, a number of rules relating to franchise agreements were added to the Dutch Civil Code. The Franchise Act aims to provide remedies for the inequality between franchisers and franchisees, one of which is the standstill period. This blog entry presents a brief summary of those articles in the Dutch Civil Code that are relevant to businesses, with a short discussion of the franchiser’s precontractual duty to provide information and the franchisee’s duty of care.

Three relevant articles following introduction of the Franchise Act

The introduction of the Franchise Act means that, as a franchiser, you are obliged to provide your franchisee with more information. In terms of the standstill period, the following articles from the Dutch Civil Code are relevant:

  • Article 7:913 of the Dutch Civil Code stipulates which information the franchiser must provide to enable the franchisee to decide whether they want to enter into the franchise agreement.
  • Article 7:914 of the Dutch Civil Code subsequently stipulates that the period in which the franchisee must receive the above information should be at least four weeks prior to concluding the franchise agreement (standstill period). In the meantime, case law has shown that this period is being enforced very strictly, so pay close attention to this! The second paragraph states a number of restrictions for the franchiser during this standstill period. For example, as a franchiser, you may not enter into or amend the franchise agreement during the standstill period, nor may you coax the franchisee to make any payments relating to the franchise agreement.
  • Article 7:915 of the Dutch Civil Code explains the franchisee’s duty to investigate. According to the legislators, the standstill period is necessary for the franchisee to comply with this duty to investigate.

Precontractual duty to provide information rests primarily with the franchiser

The parties must exchange certain information in a timely manner during the standstill period. This obligation rests primarily with the franchiser, who is obliged to provide the following information:

  • The draft of the franchise agreement
  • A representation of the fees, investments and other financial contributions to be made by the franchisee
  • Information on how and how often there will be a consultation between the franchiser and the franchisee
  • The contact details of the franchiser’s representative body
  • The extent to which the franchiser may enter into competition with the franchisee
  • Information on how and how often the franchisee is informed about the franchiser’s sales figures
  • Insight into its own financial circumstances
  • Financial information regarding the intended location of the franchise business.

Franchisee’s duty to investigate during standstill period

The four-week standstill period commences after you have provided the necessary information to your franchisee. This standstill period gives them time to examine the information provided. However, this does not mean they can sit back and relax.

After all, they are obliged to take measures to prevent them from entering into the franchise agreement on the basis of incorrect assumptions. The franchisee can devise these measures with the help of an expert during the standstill period. They also have the option to ask questions or consult with the franchiser on the intended franchise agreement.

Blenheim advises companies on franchise issues

Blenheim’s lawyers assist both Dutch and international clients with franchise issues. Should you have any questions about the information above, please do not hesitate to get in touch with Blenheim.