In December 27th, 2019, Federal Law 13,996/2019 (New Franchise Law) was enacted, and it will come into force in March 27th, 2020. The new Franchise Law consolidates contractual practices and introduces some novelties, especially related to the disclosure document, as well to contractual clauses.
The legal definition of “corporate franchise activity” was slightly changed to reinforce that the relationship between franchisor and franchisee (and its employees) does not constitute an employment or consumer relationship.
In addition, the New Franchise Law indicates additional information that now must be included in the disclosure:
(i) the existence or absence of rules regarding a franchise agreement’s transfer or succession;
(ii) whether there are rules that restrict competition between franchisors and franchisees;
(iii) the agreement’s term and its renovation rules;
(iv) information regarding minimum quotas of supply that must be acquired by franchisees (and the possibility and conditions to refuse products or services);
(v) specific breaches that lead to indemnification obligations;
(vi) information about franchisee’s association;
(vii) information regarding the place, date and hour for receiving the requested documentation. It is important to remark that although not mandatory in the past, such information was already provided by major franchisors in Brazil.
Moreover, the new Franchise Law also introduces new provisions applicable to the franchise agreement itself. For example, the new legislation allows the parties to choose the applicable jurisdiction, as it was already authorized by other Brazilian laws. Additionally, the law enshrines new specific rules for leasing of properties:
(i) the franchise agreements that regulates commercial property sublease to the franchisee can be renewed either by franchisee or by franchisor;
(ii) subject to some requirements, the payment due to the sublease by the franchisee (sublessee) to the franchisor (lessee) can be higher than the value that must be paid by the franchisor (lessee) to the lessor.
This provision could potentially conflict with the Federal Law 8,245/1991, which regulates urban property lease agreements. Thus, we recommend waiting for legal developments on how to deal with this apparent conflict of laws.
The new Franchise Law goal is to increase legal certainty to the franchising industry, by reinforcing the absence of employment and consumer relationships and increasing transparency between franchisor and franchisee. Also, the new law provides more transparency and flexibility to negotiate contract clauses.
Our team will be monitoring the new Franchise Law outcomes and we are willing to provide more information about it.