Buying a Franchise in Belgium: Limit Your Personal Guarantee

Buying a franchise through a company does not automatically protect your personal assets. A bank, landlord or franchisor may ask for a personal guarantee. Trust matters within the franchise community, but a guarantee needs clear limits in writing. This guide helps you understand your total personal exposure before you commit.

1. Review all personal security commitments together

When buying a franchise, you will usually discuss several agreements: the franchise agreement, a loan, the premises lease and possibly equipment leasing. Review any personal security commitments together, rather than contract by contract. One guarantee may seem manageable; several claims arising at once can paint a very different picture.

Ask each party what security they require and who must provide it. Check appendices and separate declarations too. A personal commitment will not necessarily appear in the main contract.

Create a single overview showing, for each form of security:

• the creditor and the person making the commitment;
• the debts covered by the security;
• the maximum amount, including any additional costs;
• its duration and the conditions for ending it;
• the events that allow the creditor to demand payment.

Distinguish between a personal guarantee, a commitment as a co-debtor and security over an asset, such as a mortgage. These arrangements have different consequences. A bank guarantee also needs separate attention: ask what counter-security the bank requires from you in return.

Have a lawyer assess the substance of each document, not just its title. A document presented as a simple formality may contain an independent obligation to pay.

2. Negotiate the amount, scope and conditions for making a claim

A well-defined guarantee sets out precisely what risk you are accepting. Be wary of wording that covers all current and future debts owed to a particular party. This could extend your exposure beyond the loan or investment you are currently discussing.

Ask for a clear overall cap. Specify whether interest, damages and recovery costs fall within that cap. A limit on the principal alone is not necessarily a limit on your total payment.

Limit the debt being guaranteed. Identify the specific agreement and check whether later extensions, new loans or other outlets could also fall within the guarantee. Ask for any extension to require your separate written consent.

Check when a claim can be made against you. Terms such as ‘joint and several liability’ and waivers of certain defences can significantly change your position. Ask your lawyer to explain specifically whether the creditor must first pursue the company and which defences remain available to you.

Arrange to be notified of payment problems. Negotiate timely notification of arrears, formal default notices and relevant changes. Without this information, you may only discover that the business is in trouble when the creditor approaches you for payment.

Has your partner also been asked to sign? Have someone explain separately whether they are giving consent, providing their own guarantee or making another commitment. The consequences for family assets depend partly on your particular financial circumstances and matrimonial property regime.

3. Align the guarantee with your financing

The amount of a guarantee should be open to negotiation alongside the other security being provided. Ask why a personal guarantee is needed if the lender also receives security over business assets. Several forms of security may support the same loan without automatically reducing your personal exposure.

Where possible, negotiate a guarantee that reduces as the loan is repaid. Set out an objective mechanism: when is the amount adjusted, who confirms it and are there any additional conditions?

Also distinguish between the end of the period during which new debts are covered and the expiry of liability for debts already incurred. An end date alone does not necessarily settle both points.

Then ask your accountant to model a downside scenario: the business closes, its assets fetch less than expected and several creditors enforce their security. The aim is not just to assess whether you can afford the monthly repayments, but to establish the maximum personal loss you could absorb.

A verbal promise that a guarantee will ‘fall away later’ is not enough. Obtain written release conditions in advance and confirmation from the creditor once those conditions have been met.

4. Check the Belgian legal rules before signing

Belgium does not have a single, comprehensive franchise-specific law. However, commercial cooperation agreements that fall within the statutory definition are subject to Title 2 of Book X of the Belgian Code of Economic Law, Articles X.26 to X.33. In principle, the franchisor must provide the draft agreement and the pre-contractual disclosure document at least one month before the agreement is concluded.

This period is not a formality. The rules also restrict the making of commitments and the requesting or payment of fees or other sums, as well as the provision of guarantees, during the protected pre-contractual phase. You should therefore have any requested personal security checked against these rules. Do not assume that every separate bank agreement or premises lease automatically benefits from the same protection.

General contract law, the applicable rules on personal guarantees and related commitments, and potentially the rules on unfair terms between businesses are also relevant. The protection you enjoy as a personal guarantor depends on the capacity in which you act and the specific agreement. An unfavourable clause is not automatically void.

Practical conclusion: only sign once you can explain, for every personal security commitment, how much you are risking, which obligations you are covering, when a claim can be made against you and how you will be fully released.