Buying a franchise: could a licence agreement actually be a franchise?

You want to join a business network, but are offered a ‘licence agreement’, ‘partner agreement’ or ‘cooperation agreement’. Does that mean the Dutch Franchise Act does not apply? Not necessarily. What matters is the substance of the relationship, not just the title of the contract. Anyone joining a franchise network should therefore first establish what type of agreement they are actually being offered.

1. Look at the terms, not the contract’s title

The Netherlands has specific franchise rules: the Dutch Franchise Act, incorporated into Title 16 of Book 7 of the Dutch Civil Code, Articles 7:911 to 7:922. Article 7:911 defines, among other things, a franchise agreement and a franchise formula.

Under a franchise agreement, an independent business owner receives both the right and the obligation, in return for a fee, to operate a franchise formula in the manner specified by the franchisor. This may involve producing or selling goods, or providing services.

The statutory definition of a franchise formula covers an operational, commercial and organisational concept designed to create a uniform identity and presentation. It includes elements such as a trade mark or trading name and know-how. That know-how consists of practical information derived from the franchisor’s experience and research which is secret, substantial and identified.

Permission simply to use a brand is therefore not automatically a franchise. However, a contract labelled a ‘licence’ may well fall within the franchise rules if the agreed relationship meets the statutory criteria.

Your first question should therefore be: am I buying only a right to use something, or am I committing to operate a complete business concept using prescribed methods?

2. Map out how the business concept works in practice

Before seeking a legal assessment, gather more than just the main contract. Also request the appendices, operating requirements, a description of the business concept and a breakdown of payments. These documents may reveal how independently you will really be allowed to operate and what knowledge you will receive.

Then prepare an overview covering four areas:

• Identity: which trading name, visual branding and other identifying features must you use?
• Operating methods: which sales methods, processes, systems and quality standards are compulsory?
• Transfer of know-how: what practical knowledge is provided, how is it documented and what makes it distinctive?
• Fees: what are you paying for, either directly or through other agreed financial contributions?

None of these points proves on its own that the arrangement is a franchise. Compulsory branding, for example, may also feature in other types of business relationship. What matters is the combination of the statutory criteria.

Also compare what you are told during sales discussions with the documents. Are you promised a fully developed business concept, while the contract refers only to use of the brand? If so, ask for an explanation and have the discrepancy assessed. A legal adviser will need both the documents and a concrete description of how the intended day-to-day relationship will work.

3. Understand which protections depend on the legal classification

If the agreement legally qualifies as a franchise, the corresponding statutory obligations apply. Before the agreement is concluded, the franchisor must provide, among other things, the draft agreement and its appendices, information about financial obligations and relevant financial data. The disclosure obligation also covers other information that the franchisor knows, or can reasonably be expected to suspect, is relevant to your decision.

As a rule, at least four weeks must pass between the provision of the legally required information and the conclusion of the franchise agreement. A provider cannot avoid that obligation simply by calling the document a partner agreement.

Specific franchise rules may also be relevant during and after the relationship, for example those concerning support, consultation and certain contractual provisions. For a franchisee established in the Netherlands, these statutory protections cannot be departed from to the franchisee’s detriment. A contractual statement that the parties ‘do not intend to create a franchise’ therefore does not, on its own, determine which rules apply.

If the relationship genuinely is not a franchise, that does not mean there is no legal protection. General contract law remains relevant, including rules on mistake, breach of contract and standard terms and conditions. However, the specific franchise protections do not then automatically apply.

4. Resolve any uncertainty before committing

Ask the provider to explain in writing why it considers the agreement to be a licence, distribution agreement or franchise. Request an explanation addressing the statutory criteria, rather than simply an assurance that this is ‘the standard contract’.

Then ask an independent legal adviser with franchise experience to assess:

• which legal classification best fits the full set of agreed terms;
• which mandatory disclosures and protections apply;
• which documents or provisions need to be supplemented before signing.

The Netherlands has no separate compulsory franchise registration that replaces this assessment. Registration in the Business Register of the Netherlands Chamber of Commerce (KVK) does not constitute approval of the type of contract either.

If your question is dismissed with ‘the Franchise Act never applies to a licence’, do not rush into a decision. An incorrect classification can lead to costly disputes later; invoking legal protection after the event is not the same as securing clarity beforehand.

Practical conclusion: first assess what you will actually be operating. If in doubt, have the type of agreement legally reviewed before you sign or take on financial obligations.