Managing changes to your franchise format in your first franchise agreement

In your own business, you can independently decide to introduce a new fit-out, product range or till system. Once you start building a franchise network, those decisions also affect other independent business owners. Before entering into your first franchise agreement, establish how you will prepare, assess the financial impact of and approve changes to your franchise format. This helps prevent necessary improvements from stalling because of unexpected costs or unclear decision-making powers.

1. Distinguish routine adjustments from changes to the franchise format

Not every change needs the same approach. Clarifying a cleaning instruction has different consequences from requiring a refurbishment. Start by listing the changes you expect to make within your franchise format. Consider brand identity, equipment, product range, software and services.

For each category, describe who may submit a proposal, what information is needed and who makes the decision. Keep three questions separate:

• Does the agreement allow you to make this change?
• What information must you share with the franchisee beforehand?
• Is prior consent required because of the financial consequences?

A clause allowing you to update the operations manual does not automatically answer all three questions. Use the manual for implementation, but set out decision-making powers and financial rules carefully in the agreement.

This is particularly important if your existing business serves as the model outlet. What is workable there may have a different impact on a franchisee with different rent, staffing levels or financing arrangements.

2. Apply the statutory right of consent correctly

The Netherlands has a Franchise Act, incorporated into Book 7 of the Dutch Civil Code. Article 7:921 of the Dutch Civil Code governs, among other things, consent to certain changes to the franchise format and to the operation of a derivative format. The latter might involve a related concept that shares some features with the existing format.

If you want to change the franchise format by exercising a contractual power to make changes, you may need prior consent. This applies where the change requires the franchisee to invest, introduces or changes a fee or other financial contribution, imposes other costs, or can reasonably be expected to cause a loss of turnover. The statutory rules link this requirement to the relevant thresholds specified in the agreement being exceeded.

If no such thresholds have been set, prior consent is always required for the financial consequences covered by these rules. This does not mean that every minor wording change requires permission: the requirement concerns the situations and consequences specified by law.

The law provides two routes: consent from a majority of the franchisees based in the Netherlands with whom you operate this format, or consent from each franchisee based in the Netherlands who is affected by the proposal. If you have only one franchisee, this will generally mean obtaining their consent.

Ask a lawyer specialising in franchise law to reflect these rules in your agreement. A general clause stating that the franchisor may always make unilateral changes does not override the statutory right of consent.

3. Make financial thresholds measurable

Do not simply copy an arbitrary figure from another franchise agreement. Assess what financial burdens an outlet can reasonably bear, taking account of cash flow, existing financing commitments and replacements already planned.

Set out separately how you will assess investments, additional contributions, other costs and expected loss of turnover. Also specify the period over which you will calculate these amounts and how related changes will be added together. This helps avoid disputes over several small requirements that collectively create a substantial burden.

A proposal for a new till system, for example, should include more than the purchase price. Factor in installation, data migration, training, subscriptions and any hours during which the outlet may need to close. Include potential savings too, but do not present uncertain benefits as guaranteed compensation.

Where possible, test a significant change in your own outlet first. Record actual costs and implementation problems. Then explain which results are applicable elsewhere and which depend on your location or personal involvement. A successful trial provides useful information, but does not replace any consent required.

4. Agree on a consistent decision-making process

Before starting your first franchise relationship, create a simple change proposal form. It should set out the objective, alternatives, impact on each outlet, timetable and financial justification. State explicitly whether you are seeking consent and which contractual provision this is based on.

The Dutch Franchise Act also requires you to provide timely information during the relationship about matters including proposed contractual changes and required investments. Present your proposal before implementation is effectively a foregone conclusion. Simply announcing that equipment has already been ordered leaves no genuine scope for a decision.

Agree on a reasonable response period and record questions, answers and decisions in writing. Do not automatically treat silence as consent. If the necessary consent has not been obtained, revise the proposal or postpone implementation; do not pass on the costs through a different invoice instead.

Practical takeaway: before entering into your first franchise agreement, run one realistic change to the franchise format through this process. Can you clearly identify your authority to make the change, the total costs, the thresholds and the consent required? If so, you have a workable basis for introducing improvements across your franchise network.