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

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

In concrete terms, this means that contractual clauses that are clearly unbalanced can be assessed against an additional blacklist and grey list of unfair clauses.

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

We note that the Belgian Code of Economic Law (“CEL”) already contains a general rule allowing other provisions in a franchise agreement to be assessed for fairness. This general rule provides that clauses in a franchise agreement which, either alone or in combination with one or more other contractual clauses, create a manifest imbalance between the rights and obligations of the parties, are unfair.

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

Background: abuse of 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 little room to negotiate 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 collaborate with other major players. As a result, independents are often forced to sign agreements with dominant parties, weakening their bargaining position;
• the number of independent supermarket and convenience store operators working under commercial cooperation agreements is expected to continue increasing. This further highlights the need to guarantee minimum rights and protections for these independents in contractual arrangements;
• unlike in other sectors (such as energy, telecom and finance), the protection of 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 weaken the bargaining position of independent food retail operators.

Some common 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 alternative suppliers, even in the event of supply issues with their contractual partner. This may increase their costs and negatively affect profitability;
• in some cases, operators are obliged to apply promotions or pricing restrictions imposed by their contractual partner, even where these seriously impact their own profitability, without the contractual partner bearing a comparable financial risk;
• contractual breaches may result in disproportionate sanctions, such as heavy penalties, placing the independent operator under even greater financial pressure;
• when renewing their cooperation agreements, independent operators are sometimes forced to accept new and less favourable conditions. Given that they have often made significant investments, they are pressured into accepting the imposed changes if they wish to continue operating their business.

What changes concretely with the Royal Decree of 20 June 2024?

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

The Royal Decree of 20 June 2024 applies to commercial cooperation agreements between companies in the retail trade of non-specialised stores predominantly selling food and consumer goods. The new regulation is particularly relevant for supermarket franchising, although other commercial models may also fall within its scope.

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

Addition to the blacklist of unfair clauses in the supermarket sector

The blacklist under the CEL is specifically supplemented for the sector by four new prohibited clauses:

Undermining the essential supply obligation

Article 2, 1° of the Royal Decree states that clauses are unfair where they “deprive the party acquiring the right of the possibility of compensation or unduly restrict the right to source supplies from third parties if the party granting the right fails to comply, or improperly complies, with its supply obligation for goods and services”.

A clause that minimises the supply obligation or weakens the supplier’s responsibility is unfair.

This clause prevents the independent supermarket or convenience store operator from being left without compensation or alternatives when the supplier fails to meet its supply obligations.

In addition, the independent supermarket or convenience store operator must have the possibility to source products elsewhere in such cases, provided the commercial formula is respected.

This concerns, for example:

• clauses under which delivery deadlines, or even the obligation of the franchisor to deliver the correct quantity, are merely obligations of means and therefore unenforceable; or
• clauses that provide an overly broad interpretation of force majeure in favour of the franchisor (for example, clauses stipulating that almost anything preventing the franchisor from delivering correctly or on time qualifies as force majeure); or
• clauses under which the franchisee is automatically subject to a penalty clause if they source products from a third party in the event of non-delivery by the franchisor.

The franchisor’s inability to supply may result from several factors (for example repeated strikes, poor functioning of new distribution centres, a change in logistics partner, IT issues, etc.).

There is no doubt that the franchisor may not have control over all of these factors.

Nevertheless, this remains part of its business risk, and clauses intended to improperly exclude or limit its liability must therefore be considered unfair.

If the franchisor genuinely could not foresee or remedy these situations, which is difficult to assume in the case of structural problems, this may constitute force majeure for the franchisor. However, even in cases of force majeure, the franchisee must still be allowed to source products from third parties while respecting the commercial formula.

Restricting the right to prepare or initiate negotiations during the notice period or non-compete period

Article 2, 2° of the Royal Decree states that clauses are unfair where they seek to “prohibit the party acquiring the right from making preparations or initiating negotiations aimed at developing a new activity during the notice period or the duration of the non-compete clause, subject to safeguarding the trade secrets linked to the agreement within the meaning of Article XI.332/4 of the Belgian Code of Economic Law”.

Certain confidentiality and non-compete clauses are drafted so broadly that the franchisee is unable, during the notice period or non-compete period, to even prepare or negotiate a new activity.

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

Passing on the cost of all kinds of promotions

Article 2, 3° of the Royal Decree prohibits clauses or combinations of clauses intended to “require the party acquiring the right to bear more than half of the costs resulting from the implementation and execution of promotional actions imposed by the party granting the right”.

Where the franchisor forces the franchisee to apply various promotions in order to maintain market share, this may be particularly disadvantageous for the franchisee. This restriction aims to address that issue.

Competent court

Article 2, 4° of the Royal Decree considers unfair clauses intended to “grant exclusive jurisdiction over disputes to the court of the registered office of the party granting the right and/or to a court located in a different language region from the registered office of the party acquiring the right”.

In commercial cooperation agreements, the stronger party often chooses the competent court, usually the court of its own registered office.

The franchisee must always have a choice regarding where proceedings can be initiated (e.g. the court of its own registered office OR the court of the franchisor’s registered office).

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

The grey list is supplemented with three new clauses which are presumed unfair unless proven otherwise.

Option or pre-emption clauses with unbalanced valuation mechanisms

Article 3, 1° of the Royal Decree considers unfair, unless proven otherwise, clauses or combinations of clauses intended to “apply a fixed valuation to the business assets or shares of the company of the party acquiring the right, where a price is determined that is manifestly unreasonable in light of a normal valuation of business assets or company shares”.

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

Such a clause is not unfair in itself, unless it results in a transfer price that is too low.

A clause is therefore unfair where it results in a transfer price that is clearly below the actual value.

A takeover based on a fixed valuation method is permitted, provided that it results in a correct and market-based valuation.

The obligation to continue operating a loss-making business

Article 3, 2° of the Royal Decree considers unfair, unless proven otherwise, clauses or combinations of clauses intended to “oblige the party acquiring the right to continue operating a business that has been structurally loss-making for at least twelve months without providing for a notice period of no more than four months for the party acquiring the right, and without additional compensation”.

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

In some cases, the franchisee is forced to continue the loss-making activities under the threat of damages for early termination.

For this reason, the franchisee must be able to terminate the commercial cooperation agreement with a maximum notice period of four months in cases of structurally loss-making businesses.

Unreasonable termination clauses: express termination clause

Article 3, 3° of the Royal Decree considers unfair, unless proven otherwise, clauses or combinations of clauses intended to “allow the party granting the right to terminate the commercial cooperation agreement through the application of an express termination clause”.

Commercial cooperation agreements often involve significant investments and are therefore usually concluded for several 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 serious consequences for the franchisee and the employees of its business, who may lose their jobs, especially considering that the franchisee often goes bankrupt in such circumstances.

According to the article-by-article commentary, express termination clauses are therefore explicitly prohibited in light of these severe consequences.

It is therefore up to the courts to determine whether a serious breach justifies the termination of the agreement.

Conclusion

For franchisors, this new regulation requires contracts to be drafted carefully and franchisees to be treated more fairly and in a more balanced manner.

For independent supermarket and convenience store operators, this regulation represents an important step towards a more balanced contractual relationship with larger market players.

It offers protection against several harmful and unfair clauses that may seriously affect their profitability and business operations.

If you have any questions regarding the new rules or would like your contracts to be reviewed, please do not hesitate to contact us.