Franchising in Belgium: choosing the right contract term

If you want to turn an existing Belgian business into a franchise network, you also need to decide how long the relationship should last. A standard term taken from a template contract is not a sound basis for that decision. The term should reflect the franchisee’s investment, the time the franchise concept needs to reach its full operating potential and the rights you can actually grant as franchisor.

1. Start with the investment, not a template contract

First, list everything a new franchisee must commit to in order to operate your franchise concept. Think about fit-out, equipment, software, training, opening stock and any building alterations. Record not just the amount involved, but also when the expense will arise and how long the asset will remain usable.

Distinguish between three different concepts:

• Useful life: how long an investment remains usable in the business.
• Depreciation period: how the cost of the investment is spread over time for accounting purposes.
• Payback period: how long it takes for the cash flows generated to recover the investment.

These periods do not necessarily coincide. A fully depreciated fit-out may still be usable, while a profitable outlet may nevertheless lack sufficient available cash to repay its loan comfortably.

Ask an accountant to assess the proposed contract term against a realistic cash flow model for a new outlet. Do not rely solely on the results of your own established business: a new operator may face a longer start-up period, different rental terms and additional financing costs.

The aim is not to promise a return. It is to establish whether the required investment and the period during which the franchisee is entitled to operate are reasonably aligned, even if the business takes longer to get going than expected.

2. Put all the relevant terms on one timeline

The franchise agreement does not stand alone. A franchisee may also be bound by a property lease, a loan, an equipment lease and software subscriptions. You may also have agreements with suppliers or rights holders on whom the franchise concept depends.

Compare the relevant start and end dates. In particular, check:

• when the franchise agreement takes effect and when the outlet can actually open;
• how long the franchisee will have access to the premises and essential equipment;
• which payment obligations will continue beyond the planned end of the agreement;
• whether your own rights last long enough for you to make the franchise concept available throughout the agreed term.

A loan that runs for longer than the franchise agreement is not automatically prohibited or unworkable. However, the mismatch must be made clear and its financial implications assessed. The same applies to a rental commitment that continues after the right to use your franchise concept expires.

Pay particular attention to the start date. If the term begins on signing but building work is delayed, the actual operating period may be shorter. Have the legal documents specify what triggers the start of the term and what happens if opening is postponed. Make sure different documents do not give conflicting answers.

3. Plan for investment during the relationship

Choosing an appropriate contract term is not just about the initial investment. Consider what replacements are reasonably likely to be needed during the term. Equipment wears out, digital systems change and the fit-out may need maintenance.

Draw up a simple investment schedule. For each item, state when maintenance or replacement is expected and identify any assumptions that remain uncertain. This helps prevent a major foreseeable expense from coming to light only after the franchisee has signed.

Then ask a practical question: can a necessary investment towards the end of the agreement still be justified within the remaining operating period? If that is doubtful, explore whether different investment timing, a different technical solution or a different contract term would be more suitable before launching the franchise.

Do not simply assume that the agreement will be renewed. The possibility of continuing is not the same as an enforceable right to do so. A financial model that only works if a future agreement is signed does not give a complete picture of the original commitment.

4. Set out the chosen term clearly in legal terms

Belgium has specific rules on pre-contractual disclosure for commercial partnership agreements, including franchising. These are set out in Book X, Title 2 of the Belgian Code of Economic Law (known by its Dutch abbreviation, WER). General contract law also applies, among other rules. The European Code of Ethics for Franchising is not Belgian law.

The Code of Economic Law does not prescribe a uniform term for all franchise agreements. You therefore need to justify your chosen term carefully and express it unambiguously. Have the start date, end date and any conditions for continuation reviewed together, rather than as isolated clauses.

Under Article X.27 of the Code of Economic Law, the prospective franchisee must receive the draft agreement and the pre-contractual disclosure document at least one month before the agreement is concluded. Article X.28 governs the content of that document, including important contractual provisions. Make sure the information about the term and the conditions for continuation is consistent with both the draft agreement and your commercial explanations.

Practical conclusion: decide on your contract term only once you have brought investment, cash flows and all related contractual terms together in a single overview. Then ask an accountant and a legal adviser to assess jointly whether the proposed operating period makes financial sense and is clearly defined in the contract.