Buying a Franchise in Belgium: Check the Confidentiality Agreement

Before buying a franchise, you may receive confidential information about operating methods, results and commercial plans. A confidentiality agreement is understandable in these circumstances. However, this document deserves as much attention as any other commitment: it could hinder your due diligence or have financial consequences even before you buy. In a healthy franchise community, confidentiality protects the franchise system without preventing an informed purchasing decision.

1. Understand what Belgian law already protects

Belgium has no single law governing every aspect of a franchise agreement. However, Book X, Title 2 of the Belgian Code of Economic Law contains specific rules on pre-contractual information for commercial cooperation agreements. Franchise agreements that fall within the statutory definition must comply with these rules. Other relevant provisions include general contract law and Book VI of the Code, which covers market practices and unfair terms between businesses.

Under Article X.27 of the Code, you must receive the draft agreement and the pre-contractual information document at least one month before entering into the agreement. During this protected period, in principle, no commitments may be entered into and no fees, sums or guarantees may be requested or paid. Exceptions apply, including for confidentiality agreements. The law expressly allows a financial penalty to be attached to such an agreement from the point at which the pre-contractual information document is provided.

Article X.31 of the Code also protects the information exchanged: the parties may use it only for the purposes of the proposed commercial cooperation agreement, not for other purposes.

A confidentiality agreement is therefore not a mere formality. Do not assume that the statutory one-month period rules out every obligation or penalty. Have any separate confidentiality agreement reviewed before signing it too.

2. Define the information, permitted uses and recipients

First, ask exactly which information is confidential. A reference to everything you ever hear about the brand is difficult to work with. A practical definition distinguishes, for example, internal manuals, non-public financial data and commercial plans that have not yet been announced from publicly available information.

Discuss explicit exceptions for information that:

• was already lawfully in your possession;
• is publicly available without any breach of your obligations;
• is lawfully received from another source;
• must be disclosed to comply with a legal obligation.

These are points to agree in writing, not exemptions you can simply take for granted. Also agree how confidential information shared verbally will be identified as such.

The permitted uses must allow you to carry out due diligence on the purchase. You need to be able to analyse data, model scenarios and seek advice. Using internal documents to develop a competing franchise system is quite different from asking an accountant to assess whether the proposed outlet is financially viable.

Check who may receive the information. Consider your lawyer, accountant and potential lender. Specify the confidentiality conditions under which they may access it and whether prior consent is required. An agreement that prohibits all onward disclosure could prevent the very expert assessment you need before making your decision.

3. Check penalties and hidden obligations

Read not only the restrictions on disclosure but also the consequences of a breach. Is there a fixed amount per incident, per document or per day? Can these amounts accumulate? Can additional damages also be claimed?

Ask for clear provisions covering:

• exactly what counts as a separate breach;
• your responsibility for your advisers’ actions;
• reporting and limiting the impact of accidental disclosure;
• the relationship between a fixed financial penalty and additional damages.

A substantial penalty is not automatically invalid. Equally, your signature does not make every clause immune from challenge. Belgian rules on unfair terms between businesses may be relevant, particularly where a clause creates a manifest imbalance between rights and obligations. Have the specific wording reviewed by a lawyer rather than relying on a later challenge.

Also watch for obligations that have little to do with confidentiality. A ban on negotiating with other brands, a commitment to purchase or a mandatory payment does not automatically become permissible simply because it appears in a confidentiality document. Have such provisions assessed separately, including against the rules governing the protected pre-contractual period.

4. Agree what happens if you do not buy

Agree in advance how you will return or delete documents if negotiations end. Check whether the deadline is realistic and how backups, advisers’ files and documents that must legally be retained will be handled. Keeping a limited, securely stored archive copy for evidential purposes may be a point to negotiate.

Also check how long the confidentiality obligations continue. Not all information retains its confidential value for the same length of time. Ask for clear provisions that reflect the nature of the information, without assuming that all protection ends when negotiations stop.

Practical conclusion: sign only when you understand which information is protected, whom you may consult and what the consequences of a mistake could be. Effective confidentiality protects the franchise community while leaving room for thorough due diligence.