Buying a Franchise in Belgium: Limit Your Personal Guarantee

Signing a franchise agreement through a company does not automatically protect your personal assets. The franchisor, bank or landlord may ask for a personal guarantee, adding another layer of financial risk to your franchise investment. You should therefore examine not only how much your business needs to invest, but also which debts you would be personally liable for if the business underperforms.

1. Review all personal security commitments together

When you buy a franchise, several parties may require security. The bank may ask for a guarantee for the investment loan, the landlord for the rent and the franchisor for contractual debts. Assess these requests together: each may seem acceptable on its own, while their combined effect could exceed what you can afford.

Ask each party for the full draft of the security agreement. A reference in a financing proposal or a verbal explanation is not enough to assess your risk. Also check the capacity in which you are signing: solely as a representative of your company, or in a personal capacity as well.

Draw up a summary showing, for each security commitment:

• the beneficiary entitled to demand payment;
• the debts covered;
• the maximum amount and any additional costs;
• the duration and conditions for termination;
• any other people required to sign.

Be aware of the distinction between a suretyship, an independent guarantee and joining an agreement as a co-debtor. These concepts are not interchangeable. Ask a Belgian lawyer to establish precisely what obligation the wording creates and which defences remain available to you.

2. Negotiate both the amount and the scope

Providing personal security for a clearly defined loan is different from accepting liability for all current and future debts owed to the franchisor. Broad wording may also cover fees, supplies, interest and costs that arise later.

Ask for the category of debts covered to be clearly defined. If the security is intended to cover only a specific payment obligation, do not agree to include every obligation arising from the commercial relationship without further review.

Also negotiate an absolute cap. Make sure the agreement explicitly states whether interest, debt recovery costs and other additional amounts fall within that cap. A stated maximum offers less certainty if various charges can be added on top.

For example, discuss the following limits:

• cover restricted to precisely identified debts;
• no automatic extension to new outlets or additional borrowing;
• a reduction as the secured financing is repaid;
• prior written consent before your personal exposure is increased.

Also ask what happens if several people provide guarantees. Do not assume the bill will be split equally: the agreement may allow a much larger claim against each signatory. Any right you may have to recover money from a fellow guarantor is separate from protection against the original creditor.

3. Check the guarantee against Belgian disclosure requirements

Belgium has specific pre-contractual rules for commercial cooperation agreements, including franchise agreements that meet the statutory definition. These appear in Book X, Title 2, Articles X.26 to X.33 of the Belgian Code of Economic Law, read together with Article I.11, 2°.

At least one month before the agreement is concluded, the franchisor must provide the draft agreement and the pre-contractual disclosure document, commonly known by its Dutch abbreviation, PID. The PID contains important contractual provisions and socio-economic information. The documents must be clear and understandable.

During this statutory period, as a general rule, no commitment may be entered into, and no fee, sum or security may be requested or paid, within the commercial cooperation concerned. There are statutory exceptions, including those relating to confidentiality and certain obligations under existing agreements.

Have any request for personal security reviewed in advance. Do not assume that a separate form falls outside these protections. Equally, do not assume that an independent loan agreement with your bank automatically falls under the same rules. The parties involved and the relationship between the documents matter.

Disclosure requirements do not, in themselves, make a personal guarantee reasonable or safe. Alongside Book X, the general rules governing contracts and personal security are relevant. The protection available to you depends on the capacity in which you act and the specific obligation you undertake.

4. Agree the conditions for release before signing

The end of your franchise agreement does not necessarily bring your personal guarantee to an end. Nor does selling your business or stepping down as a director automatically release you.

Agree when new debts will cease to be covered, which existing debts will remain covered and how you will obtain written confirmation of your release. Also have the effect of any extension or amendment to the underlying agreement on your guarantee assessed.

Practical takeaway: sign only when you can explain your maximum personal exposure and know how it ends. Have the franchise agreement, financing arrangements and all personal security commitments reviewed together, rather than treating them as separate formalities.