Buying a Franchise in Belgium: Check Liability Exclusions

A franchisor promises a proven business format, but what happens if a failure in centrally provided services causes losses for your business? Each business owner within a franchise network remains independent. That does not, however, mean you should bear all the consequences of other people’s mistakes. Before buying a franchise, pay particular attention to clauses that exclude or limit the franchisor’s liability: they determine how much a contractual promise is really worth.

1. Identify where risk falls on you

Liability provisions are not necessarily grouped under one clear heading. Limitations may be scattered across the franchise agreement, the general terms and conditions, and separate agreements for software or other central services. You should therefore also request any documents referred to in the draft agreement.

Highlight clauses stating that the franchisor is not liable for service failures, incorrect information, supplier problems or losses caused by third parties it engages. Also look out for wording such as ‘solely’, ‘maximum’, ‘indirect loss’ and ‘at your own cost and risk’.

Then draw up a simple risk table with four columns:

• Event: what exactly could go wrong?
• Responsible party: who manages the process or selects the service provider?
• Loss: what costs or losses would your outlet incur?
• Contractual cover: who must pay under the agreement?

Take, for example, a mandatory central ordering system that stops working for several days. You may still have to pay staff while no orders come through. The relevant question is not just who fixes the fault, but whether the liability provisions cover your additional costs and lost revenue. A promise to restore the service is not compensation for your losses.

2. Read exclusions and compensation caps together

A compensation cap may seem reasonable until you see which losses have already been excluded. For example, the agreement might exclude loss of profit and then limit any remaining compensation to certain fees paid. The cap alone therefore tells you little about what you could actually recover.

For each cap, check:

• does it apply per event, per year or over the entire term of the agreement?
• which payments count towards the calculation?
• are related incidents treated as a single event?
• does the same limitation apply to mistakes by people or service providers engaged by the franchisor?
• are there exceptions for particularly serious breaches?

Also ask precisely what ‘indirect loss’ means. Without a clear definition, the parties may later disagree over how to classify lost stock, additional staffing costs or lost profit.

Ask your accountant to model a realistic service failure scenario, without creating a false sense of certainty about the outcome. Compare the potential loss with the maximum compensation you could recover. This will show you how much risk remains with your business. A limitation that is acceptable for a minor administrative error may be unworkable if your entire outlet depends on a single central system.

3. Understand the Belgian legal framework

In Belgium, franchise agreements that meet the statutory definition fall within the rules on commercial cooperation agreements. Book X, Title 2 of the Code of Economic Law, comprising Articles X.26 to X.33, governs pre-contractual information. As a general rule, you must receive the draft agreement and the pre-contractual disclosure document at least one month before entering into the agreement. Use this period to have the liability provisions reviewed as well.

Compliance with this disclosure obligation does not automatically make a limitation of liability valid. General contract law and the rules on unfair terms between businesses in Book VI of the Code of Economic Law also apply.

Under these business-to-business rules, a term may be unfair if, on its own or together with other terms, it creates a manifest imbalance between the parties’ rights and obligations. There are also prohibited terms and terms presumed to be unfair unless proved otherwise. An unfair term may be void; this does not necessarily invalidate the entire agreement.

Not every limitation is prohibited, but nor is every clause valid simply because you sign as an independent business owner. Ask a Belgian lawyer to assess the specific wording, the exceptions and the interaction with other clauses. Do not rely on future legal proceedings as a substitute for clear terms agreed in advance.

4. Negotiate a workable allocation of risk

Do not simply ask for every limitation to be removed. Focus your proposal on risks the franchisor actually controls and losses your business cannot absorb itself.

Discuss an appropriate cap, clearly defined categories of loss and any exceptions your lawyer considers necessary. Also agree how incidents should be reported, what information the parties should exchange and how they should limit further losses. Check that a short contractual notification deadline does not make your right to claim practically unusable.

Review these arrangements with your insurer or broker. Business interruption insurance does not automatically cover every loss caused by a contracting party’s mistake. Ask which events are insured, which exclusions apply and what excess you would have to pay. The franchisor’s own insurance is no guarantee that you will receive compensation directly either.

Practical conclusion: only sign once you can explain, for the main scenarios in which something could go wrong, who bears the loss, how much you could recover and what shortfall your own business would need to absorb.