Since 2005, Belgian law has provided for a mandatory information protocol that must be followed by parties who wish to enter into a “commercial partnership” together. Traditionally, this refers above all to parties that are active in the distribution sector or work via franchising or sales concessions, but this information obligation also applies when a form of commercial agency or brokerage agreement is nvoked. The legislator is now taking things a step further and seeking to protect the “economically eaker party” even better by providing additional regulations. This news report provides a brief verview of the current obligations associated with so-called commercial partnerships and also ighlights the concrete consequences that the entry into force of these new additions entails.
Current legislative framework
Indeed, the pre-contractual information obligations mentioned above are not new. Today, an obligation already exists on the part of the person granting the “right” (e.g. the potential franchisor) to make the following available to the other person (e.g. the potential franchisee) at least one month before the conclusion of the cooperation agreement:
1. A draft of the commercial cooperation agreement;
2. A separate document containing certain information, also referred to as the “pre-contractual information document” or “PID”.
These documents must ensure that the economically weaker party can conclude the agreement with sufficient knowledge. From this perspective, the legislator has included a list of items that must be included in the PID. These items relate, on the one hand, to the legal aspects and include an overview of:
- the main contractual commitments;
- the possible consequences in case of non-compliance with these commitments;
- the agreed fees;
- any non-competition clauses and consequences for breach;
- the duration of the cooperation;
- etc.
Furthermore, the company which grants the right must also provide thorough identification of itself, in addition to which the economic aspects of the cooperation are explained. This in turn relates to:
- its corporate data;
- the nature of its activities;
- its financial data (in particular, the annual accounts for the last three financial years);
- the history, condition and prospects of the market in which the activities are carried out;
- the intellectual property rights the use of which is authorized;
- etc.
These requirements therefore remain unaffected and will be further supplemented and concretised as of 1 September 2024.
Expansion as of 1 September 2024
The law of 9 February 2024 changes the legal part of the above list since in practice the entire cooperation agreement was simply included in the PID.
In order to make the prospective assignee clearly aware of its obligations under the agreement, the legislator stipulates that the PID should rather act as a kind of “red flag document” in which only the most relevant matters are listed. Specifically, this refers to the following information:
- the competent court, the applicable law and the language of the proceedings.
- the costs at start-up or recurring costs, such as marketing, IT, transport, training at the expense of the potential assignee, and the conditions for changing them;
- the obligations with regard to the use of maximum prices;
- the obligations with regard to the minimum sales and minimum purchase and the consequences of not achieving them;
- the restrictions on the use of intellectual property rights;
- the restrictions on access to and rights to use customer data during and after the potential assignee’s agreement;
- the restrictions regarding online sales and online promotion;
- the clauses on the relationship and dependence between the commercial cooperation agreement and the lease or other agreement (if any) concerning the operating establishment;
Consequences for non-compliance
Failure to comply will be severely sanctioned:
- In fact, if this document is not drawn up (in time), the economically weaker counterparty can invoke the nullity of the entire cooperation agreement up to two years after the conclusion of the agreement. As a result, the agreement is deemed never to have existed and the rights and obligations provided for in the agreement may no longer be invoked;
- On the other hand, if this document has been drawn up incompletely or incorrectly, the nullity of the incomplete or incorrect provisions can be claimed. In this case too, the rights and obligations contained in these provisions can no longer be invoked.
For the sake of completeness, we would also like to mention that in such cases, the economically weaker party can claim that it was “deceived” or “made errors”, and that it can invoke the rules of liability law in order to obtain compensation for any damages it may have suffered. It therefore has the necessary options to combat this negligence.
Our PKF BOFIDI Legal experts are here to help you
Under the motto better safe than sorry, you should therefore pay due attention to these information requirements. Taking them (too) lightly can have serious consequences. When entering into commercial partnerships, it is therefore always advisable to seek legal guidance. Please do not hesitate to contact our legal team.
This article was written by Michiel Coppens, specialising in corporate law, mergers and acquisitions.