The Swedish Parliament has passed an act
imposing disclosure obligations upon franchisors.
The act will come into force on 1 October
2006.
Consequences of
non-compliance
Failure to comply with
the new act will result in a Court order against
the franchisor requiring compliance with the
disclosure obligations. Such orders are likely to
also impose a fine on the franchisor.
Disclosure
requirements
According to the act, the
franchisor will be required to disclose in
writing, within a reasonable period of time before
a franchise agreement is entered into, such
information on the nature of the agreement and
other information, which, according to the
circumstances, may be required. The information
must be clear and comprehensible. As a minimum it
is required to include the following:
- a description of the franchise to be
operated by the franchisee;
- information on other franchisees with whom
the franchisor has entered into agreements
regarding the same franchise system and the
scope of its businesses;
- information on the fees to be paid by the
franchisee to the franchisor and other economic
conditions in relation to the franchise;
- information regarding the franchisor's
intellectual property to be licensed to the
franchisee;
- information on the categories of goods
and/or services that the franchisee is required
to purchase or lease;
- information on the term and conditions for
amendments, renewal or termination of the
agreement and the economic consequences in case
of termination;
- information on in-term and post-term
non-compete covenants;
- information on how disputes in relation to
the contract are to be resolved and the
provisions on liability for any cost in relation
to such a dispute.
These disclosure requirements will also apply
on the sale of a franchisee's business to a new
franchisee.
The time in which the information is to be
disclosed, is not explicitly defined in the act,
but according to preparatory works to the act,
fourteen days is likely to be the minimum
period.
The non-compliance with these requirements will
not per se have any effect on the parties rights
and obligations in respect of the agreement (i.e.
it will not give the franchisee the right to claim
for termination of the contract or damages) but as
stated above, the Swedish Courts may order the
franchisor to comply with the information
requirements which is likely to be accompanied
with a fine.
The act will only apply to agreements entered
into after 1 October 2006.