Buying a franchise: check the dispute resolution clause

When reading a franchise agreement, you will usually be thinking about working together, not about a potential dispute. Yet the dispute resolution clause deserves attention before you buy a franchise. Disagreements can arise within a franchise network over commitments, information or how the business is run. The procedure set out in the agreement determines how and where your rights can be assessed, and what costs and delays you may face.

1. Map out the full process for handling a dispute

Look through the draft contract for terms such as ‘disputes’, ‘mediation’, ‘arbitration’, ‘jurisdiction’ and ‘governing law’. Check the general terms and conditions and any annexes too. An important procedural provision may sit outside the main contract while still forming part of your agreement.

Next, draw up a simple step-by-step outline: who do you report a problem to, what response should follow, and when can you move to the next stage? Some contracts require you to discuss the matter with senior management first. Others add mediation before you can take the dispute to a court or arbitrator.

Pay particular attention to:

• Notification: must a complaint be sent to a specific address or through a particular channel?
• Time limits: how long do the parties have to respond and take the next step?
• Closure: at what point are internal discussions considered to have failed?
• Urgent action: can you seek immediate legal protection if a problem is urgent?

A discussion stage can help preserve the relationship. Without a clear deadline, however, the same requirement can delay a resolution. Ask for a procedure that does not leave progress dependent on one party’s willingness to keep talking.

2. Understand who makes the final decision

Not every dispute resolution clause leads to the ordinary courts. Distinguish between discussions, mediation, binding third-party determination and arbitration. These are not interchangeable terms for the same process.

In mediation, an independent mediator helps the parties reach their own agreement. The mediator does not impose a decision. Check how the mediator is selected, how costs are shared and what happens if no solution is reached. An obligation to try mediation is not the same as an obligation to accept a proposed settlement.

In binding third-party determination — known in Dutch as bindend advies — the parties submit their dispute to a third party whose decision they have agreed to follow. The scope for subsequently challenging that decision in court is limited.

In arbitration, private arbitrators decide the dispute instead of the ordinary courts. Ask which arbitration rules apply, how many arbitrators will be appointed, which language will be used and where the proceedings will take place. Arbitration is not automatically cheaper or faster. The options for challenging an award also differ from those available in ordinary court proceedings.

Ask a lawyer specialising in franchising to assess what the chosen route means for you. Do not just ask whether the clause is valid: also ask whether you could realistically afford and pursue the proceedings.

3. Check the clause against Dutch legal protections

The Netherlands has specific franchise legislation: the Dutch Franchise Act (Wet franchise), incorporated into Book 7, Title 16 of the Dutch Civil Code since 1 January 2021. It includes pre-contractual disclosure obligations and rules governing the franchise relationship. The draft franchise agreement, including its annexes, forms part of the information that must be provided in advance. The dispute resolution clause should therefore be part of your assessment before you commit.

For franchisees established in the Netherlands, these statutory franchise rules cannot be departed from to their detriment. Choosing a foreign governing law does not simply remove that protection. However, this does not mean that every provision of Dutch law automatically applies to every aspect of an international agreement.

You should therefore distinguish between two questions: which law applies and who decides a dispute? A clause choosing foreign law and a clause providing for a foreign court or arbitration each require separate assessment. The cost of international proceedings can also make it harder to exercise your rights in practice.

If misleading or incomplete information was provided before the agreement was concluded, Dutch legal concepts such as mistake (dwaling) or tort (onrechtmatige daad) may be relevant, depending on the circumstances. Failure to fulfil contractual obligations may amount to breach of contract (wanprestatie). None of these legal grounds automatically entitles you to have the contract set aside or to receive damages: the facts, evidence and applicable legal requirements remain decisive.

4. Make sure the procedure is workable before you sign

Discuss a concrete scenario with your adviser: you discover a significant difference between a written commitment and what happens in practice. What steps must you take, what evidence will you need, and which costs will you have to pay upfront?

Keep draft versions, annexes, commitments and answers to your questions in an organised file. Confirm important verbal agreements in writing. Also check whether any legal expenses insurance you hold covers franchise disputes; business contract disputes are not necessarily included.

Where needed, ask for clear response deadlines, an independent process for selecting a mediator and a workable procedure for urgent cases. If a dispute arises later, do not stop making payments without taking advice: doing so could expose you to contractual risks of your own.

Practical takeaway: only sign once you can explain where to take a dispute, which steps are compulsory and whether you can realistically manage and afford that process.