The Pre-contractual Information Document (PID)

The aim of the Franchise Act is, among other things, to strengthen the position of the entrepreneur. Therefore, the Franchise Act includes an article about the information a candidate must receive before joining a franchise. This information is meant to help the entrepreneur make an informed choice about whether to join the franchise system. To streamline this process, the Franchise Act lists several topics that the franchisor must provide. To streamline this further, we advise incorporating this into a Pre-contractual Information Document.

Moreover, the information obligation in the Franchise Act is mutual. According to the Franchise Act, the franchisor can also ask the candidate to provide certain important information, such as statements to verify if the franchisee can make the necessary investment.

From Pre-contractual Information Document to Franchise Agreement

The Pre-contractual Information Document must be handed over to the candidate four weeks before signing the franchise agreement. During these four weeks, no changes that negatively or burdensomely affect the candidate should be made to the collaboration. Additionally, the franchisor may not oblige the candidate to make investments or undertake other commitments. The period is solely intended for further investigation and development of their plans.

Topics in the Pre-contractual Information Document

The Franchise Act specifies several topics that must be provided to the prospective franchisee:

1. The franchise agreement to be signed, including appendices

It's crucial that an entrepreneur knows and understands what's in the franchise agreement. Generally, the franchise agreement is discussed jointly beforehand. During the four-week stand-still period, the prospective franchisee may seek additional external advice from an expert to better understand their rights and obligations within the franchise agreement. During this period, the draft franchise agreement may not be changed unless the change benefits the franchisee.

2. Overview of all fees and surcharges to be paid and an explanation of what they are for

The franchise agreement includes various provisions about fees and surcharges. However, it's often only concretely explained in the franchise manual what the franchisee receives in return for these fees and surcharges. Since the prospective franchisee typically receives the manual only after signing the franchise agreement, this information must also be included in the Pre-contractual Information Document.

3. Overview of the investments the new franchisee must make

The entry fee is included in the franchise agreement. This is one part of the investment. In most cases, however, there are additional investments the new entrepreneur must make. The candidate should gain insight into this. For example, equipment, inventory, or goods that are needed. For matters such as renovating a building or purchasing inventory, this will often be an estimate, as it depends on the condition of the building and other unforeseen factors. Recurring investments must also be included in the Pre-contractual Information Document.

4. Information on the method and frequency of franchise consultations

The frequency of consultations within a franchise organization indicates the mutual involvement within the franchise system and the franchisees' input. It's also important for the entrepreneur to know if consultation bodies have been created, such as a franchise council or franchise association, with which the franchisor has well-functioning discussions.

5. Contact details of the representative body of the franchisees (if available)

With the contact details, the candidate can reach out to entrepreneurs to ask about their experiences within the franchise system. Existing entrepreneurs can further supplement the picture the franchisor has presented of the system to help the candidate make the right decision.

6. Information about the financial health of the franchisor

The franchisor is obliged to provide available and relevant information about their financial position to the candidate. It is crucial for the entrepreneur to assess whether the franchisor is not on the verge of bankruptcy.

7. Financial information about the intended location where the new franchisee will be active, or information from comparable franchise locations

This may involve past revenue, but also site surveys, research into local purchasing power, or rental prices. If it concerns a location where no franchisee has previously been established, the franchisor must provide financial information for a comparable business.

8. All other potentially relevant information for the prospective franchisee

The Franchise Act, as described above, specifies several subjects regarding information provision. However, there may be other relevant information that the franchisee needs to know to make an informed choice about entering the franchise collaboration. For this reason, the Franchise Act mandates that such obviously relevant information must also be included in the Pre-contractual Information Document.

Drafting the Pre-contractual Information Document

The Pre-contractual Information Document is thus a document with legal value. By doing so, you fulfill the obligations set out in the Franchise Act. Failing to correctly draft a Pre-contractual Information Document and thereby fail to provide the necessary information can have significant consequences.

Koelewijn & Partners is happy to assist you in drafting the Pre-contractual Information Document (PID). Interested? Feel free to contact us using the form below.