New Belgium Franchise Law

1. On 18th October a new franchise law is due to come into force in Belgium with retrospective effect from 1 September 2005.

2. The new law requires franchisors to deliver a formal disclosure document to potential franchiees one month before the franchise is entered into. Failure to do so will potentially render the Franchise agreement unenforceable.

3. The law side steps the problems posed by attempting to define franchising by referring to "commercial partnerships" instead. These are defined as "agreements made between two persons, each of whom is acting in his/her own name on his/her own behalf, by which one person grants to the other, in return for a consideration of any nature whatsoever, whether directly or indirectly, the use of one or more commercial formulae for the sale of goods or the provision of services in one or more of the following forms: a common sign; a common trade name; the transfer of know-how; commercial or technical assistance" .

4. The franchisor must provide potential franchisees with a disclosure document at least one month before closing and stipulates that "No undertaking may be given, and no consideration, sum of money or deposit may be paid or required prior to the expiry of a period of one month following the issue of the [disclosure] document".

5. The disclosure document must comprise of two separate sections. The first summarising the main terms of the franchise agreement and the second detailing "information relating to the correct evaluation of the commercial partnership agreement"

6. In the event that the franchisor fails to comply with the disclosure requirements the franchisee may choose to have the agreement become null and void within a period of two years of the date that the agreement came into force. If the disclosure document fails to properly summarise the terms of the franchise agreement those terms will not be enforceable.

7. Both parties are placed under a duty of confidentiality as regards information that they obtain "with a view to entering into a [franchise] agreement, and may not use the information, either directly or indirectly, other than for the purposes of the commercial partnership agreement to be entered into" .

8. Next year there will be an evaluation report issued by the government examining the extent to which the pre-contractual disclosure has "contributed to the integrity, the clarity and the balance of commercial partnership agreements". The report will also identify any terms in agreements which it believes "clearly create an imbalance between the parties, inter alia, non-competition clauses and clauses which determine the re-sale value, the recission and termination clauses, and the obligations to achieve a result" .