Buying a franchise: check your consent rights when the concept changes

A franchise concept continues to evolve. A new shop fit-out or a revised service model can strengthen the whole franchise network, but may also require substantial investment from you. If you are buying a franchise in the Netherlands, look beyond the concept as it stands today. Investigate which changes the franchisor may introduce later, what they could cost and when prior consent is required.

1. Understand what the statutory right of consent protects

The Netherlands has specific franchise legislation: the Franchise Act, incorporated into Title 16 of Book 7 of the Dutch Civil Code. Article 7:921 governs consent rights for certain changes. This right is not a general veto over every innovation. Rather, it protects franchisees, under certain conditions, against the financial consequences of decisions about the franchise concept.

The rules cover a proposed change to the franchise concept, or allowing a derivative concept to be operated, without amending the franchise agreement. Consent may be required if, as a result, the franchisor requires an investment, fee, surcharge or other financial contribution, or can reasonably foresee that implementation will lead to other costs or lost turnover.

The thresholds set out in the agreement play an important role here. If the applicable thresholds are exceeded, the franchisor must obtain prior consent from either a majority of franchisees based in the Netherlands or each franchisee based in the Netherlands who is affected by the proposal. This does not automatically mean that your individual consent is needed for every expense.

If no thresholds have been specified for the financial consequences concerned, the statutory consent rules apply regardless of their scale. For franchisees based in the Netherlands, these statutory protections cannot be varied to their detriment. Ask a specialist franchise lawyer to assess how your contract reflects them.

2. Make financial thresholds specific

Look through the draft contract for terms such as changes to the franchise concept, investment obligations, consent and thresholds. A clause requiring you to comply with brand standards does not, on its own, explain how major updates are approved. Read the franchisor’s powers to make changes alongside the consent provisions.

For each threshold, ask for clarity on:

• The type of cost: does the threshold apply to investments, recurring contributions, other costs or lost turnover?
• The measurement period: is it calculated per change, per calendar year or over another period?
• Combined measures: are several related measures added together?
• The calculation: are installation, temporary closure and associated works included?
• The supporting information: who calculates the financial impact, and what information will you receive to assess it?

A threshold for each individual measure can have a very different financial effect from an annual threshold. Several smaller changes may together place a heavy burden on your outlet. Ask for a worked example involving multiple changes within the same period.

Also consider whether the threshold is appropriate for your outlet. A fixed amount for all franchisees can place a disproportionately heavy burden on a smaller location. Ask your accountant to assess how much your business can realistically afford to invest.

3. Investigate which changes are already planned

Before buying, ask about specific plans for refits, new equipment, changes to services and other adjustments to the franchise concept. The statutory pre-contractual disclosure obligations cover, among other things, required investments and other information that the franchisor knows, or can reasonably suspect, is relevant to your decision.

Distinguish between an exploratory idea, a pilot at a few outlets and a decision that is ready to be rolled out. For announced changes, ask for the timetable, the expected financial impact and the assumptions behind any projected benefits. An expected increase in turnover is not the same as having cash available to pay for an investment upfront.

Use a concrete scenario: your outlet must be refitted during the contract term. Identify purchasing, installation, disposal, temporary closure and financing costs separately. Then ask for an explanation of how the contractual thresholds apply to that scenario.

Also ask how recently fitted-out outlets are treated. A transition period, phased introduction or exemption for new franchisees may be negotiable, but none is automatic. Make sure any such arrangements are expressly included in the contract documents.

4. Check how consent is obtained

A financial threshold has little practical value if it is unclear who decides and what information they use. Ask how proposals are shared, how much time franchisees have to respond and how voting results are recorded. Also check what authority a franchisee association or representative body actually has: consultation is not necessarily the same as legally valid consent.

Ask what happens if the final costs exceed the amount to which franchisees consented. Agree how variations will be reported and when a further review or decision will be required.

Bear in mind that consent can be obtained through a majority vote: your own vote against a proposal will not necessarily block it. Conversely, a vote does not automatically replace all the agreements needed to amend your individual contract. Have any uncertainty about this assessed before signing.

Practical conclusion: do not just buy into the current concept; examine the rules governing future changes too. Sign only when the cost thresholds, calculations and consent procedure are clear and appropriate for your outlet’s financial capacity.