Fairer rules in franchise agreements: enhanced protection for independent food retail operators

The objective? To strengthen the negotiating position of independent supermarket and convenience store operators and better protect them against unbalanced contractual terms. Since 2025, additional restrictions have applied to unfair contractual clauses in this sector.

In practice, this means that contractual clauses that are clearly unbalanced may be assessed against an additional black list and grey list of unfair terms.

New and renewed franchise agreements must comply with these rules as from 1 January 2025. Existing franchise agreements also had to be amended by 1 May 2025.

In this newsletter, we discuss the changes introduced by this new legislation, why they were considered necessary and the impact they will have on both franchisors and franchisees.

Background: abuse of market power leads to unbalanced franchise agreements

In Belgium, a limited number of major players in the food distribution sector hold a significant market position, leaving independent supermarket and convenience store operators with very little room for negotiation when entering into agreements. This has led to several issues within the sector:

• the market offers limited opportunities for independent supermarket and convenience store operators to cooperate with other major players. As a result, independents are often compelled to sign agreements with dominant parties, weakening their negotiating position;
• the number of independent supermarket and convenience store operators working under commercial cooperation agreements is expected to continue increasing. This reinforces the need to guarantee minimum rights and safeguards for these operators in contractual arrangements;
• unlike in other sectors (such as energy, telecommunications and finance), the protection available to independent supermarket and convenience store operators remains limited, making them particularly vulnerable to unfair contractual terms.

In short, the imbalance of power and legal dependency weakens the negotiating position of independent food retail operators.

Some commonly encountered problematic contractual clauses include:

• independent operators may be required to purchase goods exclusively from their contractual partner, leaving them with no freedom to source products from other suppliers, even in the event of delivery issues. This may increase their costs and negatively affect profitability;
• in certain cases, operators are obliged to apply promotions or price restrictions imposed by their contractual partner, even where these significantly impact their own profitability, without the contractual partner bearing a comparable financial risk;
• contractual breaches may lead to disproportionate sanctions, such as heavy penalties, placing further financial pressure on the independent operator;
• upon renewal of their cooperation agreements, independent operators are sometimes forced to accept new and less favourable terms. Since they have often made substantial investments, they are under significant pressure to agree to these changes if they wish to continue operating their business.

What changes does the Royal Decree of 20 June 2024 introduce?

Given the identified issues and the imbalance of power within the sector, regulatory intervention was considered necessary.

The new legislation is particularly relevant for supermarket franchising, although other commercial cooperation models may also fall within its scope.

During the preparation of this Royal Decree, several commercial cooperation agreements between supermarket chains and independent operators were examined. Based on this analysis, specific clauses were identified as being unbalanced and unfair. These clauses have now been included in the so-called “black” and “grey” lists of unfair terms.

Addition to the black list of unfair terms in the supermarket sector

The black list under the Belgian Code of Economic Law has been supplemented for this sector with four new prohibited clauses.

Erosion of the essential supply obligation

A clause that minimises the supply obligation, weakens the supplier’s responsibility or imposes sanctions where the franchisee sources products from a third party because the franchisor is unable to supply them is considered unfair.

This provision aims to prevent independent supermarket and convenience store operators from being left without compensation or an alternative solution where the supplier fails to meet its supply obligations.

In such situations, the independent operator must also be allowed to source products elsewhere, provided the commercial concept is respected.

Examples include:

• clauses whereby delivery deadlines or even the franchisor’s obligation to deliver the correct quantities are treated merely as obligations of means and are therefore unenforceable;
• clauses giving an excessively broad interpretation of force majeure in favour of the franchisor (for example, clauses stating that virtually any circumstance preventing timely or correct delivery constitutes force majeure);
• clauses automatically subjecting the franchisee to a penalty clause if it sources products from a third party in the event of non-delivery by the franchisor.

A franchisor’s inability to supply products may result from several factors (for example repeated strikes, malfunctioning new distribution centres, changes in logistics partners or IT issues). Clearly, the franchisor may not have full control over all these factors.

Where the franchisor genuinely could not foresee or remedy these situations, which is difficult to accept in the case of structural problems, they may constitute force majeure. Even in such cases, however, the franchisee must be able to source products from a third party while respecting the commercial concept.

Restricting the right to make preparations or conduct negotiations during the notice period or non-compete period

Certain confidentiality and non-compete clauses are drafted so broadly that franchisees are unable, during the notice period or non-compete period, even to make preparations or conduct negotiations for a new activity.

A clause prohibiting the franchisee from negotiating another agreement with other companies during the notice period or the non-compete period must therefore be regarded as unfair.

Passing on the cost of promotions

Where the franchisor requires the franchisee to apply various promotions in order to maintain market share, this may prove particularly detrimental to the franchisee.

The law therefore prohibits clauses, or combinations of clauses, that require the franchisee to bear more than half of the costs of promotional campaigns.

Competent court

In commercial cooperation agreements, the stronger party often determines the competent court, usually the court located at its own registered office.

The franchisee must always have a choice regarding the court before which proceedings may be initiated (for example, the court of the franchisee’s own registered office or the court of the franchisor’s registered office).

Addition to the grey list of unfair terms in the supermarket sector

The grey list has been supplemented with three new clauses presumed to be unfair unless proven otherwise.

Option or pre-emption clauses with unbalanced valuation mechanisms

Option and pre-emption clauses relating to the franchisee’s business assets or shares are frequently included in favour of the franchisor.

Such clauses are not unfair in themselves unless they result in an excessively low transfer price. A clause is therefore unfair where it results in a transfer price that is clearly below the actual market value.

A transfer based on a fixed valuation method remains possible, provided it results in a correct and market-based valuation.

The obligation to continue operating a loss-making business

Commercial cooperation agreements in the supermarket sector are often concluded for long periods. This may become problematic where the business proves to be loss-making for various reasons.

In some cases, franchisees are forced to continue operating loss-making activities under the threat of damages in the event of early termination.

For this reason, franchisees must be allowed to terminate a commercial cooperation agreement with a maximum notice period of four months where the business has been structurally loss-making for at least twelve months.

Unreasonable termination clauses: express termination clauses

Commercial cooperation agreements often involve substantial investments and are therefore generally concluded for multiple years.

It is therefore unbalanced for the franchisor to reserve the contractual right to terminate such an agreement at very short notice.

This may have severe consequences for the franchisee and the employees of its business, who may lose their jobs, especially considering that the franchisee will often face bankruptcy in such circumstances.

According to the explanatory notes, express termination clauses are therefore explicitly prohibited in view of these serious consequences.

It is consequently up to the courts to decide whether a serious breach justifies termination of the agreement.

Conclusion

This new legislation requires franchisors to draft their agreements carefully and to treat franchisees in a fairer and more balanced manner.

For independent supermarket and convenience store operators, the new rules represent an important step towards a more balanced contractual relationship with major market players.

They provide protection against certain unfair and disadvantageous clauses that may seriously harm profitability and business operations.

Should you have any questions regarding these new rules or wish to have your agreements reviewed, please do not hesitate to contact us.