Brazil Adopts New Franchise Law

The new Law 13,966 brings with it certain modifications, among which the following are highlighted:

 Clarifies that the parties’ relationship is not a consumer relationship, ratifying the jurisprudence in this regard;

 Makes even clearer the indication of lack of employment relationship, which was already specified by the previous law;

 Determines that the franchise model may be adopted by a private company, state-owned company or non-profit entity, regardless of the segment in which it operates;

 Indicates that, in cases where the franchisor sublets to the franchisee a commercial business site on which the franchise is located, either party will be entitled to propose the renewal of the sublet of the property, prohibiting the exclusion of any of them from the lease or sublet agreement at the time of renewal or extension, except in the event of default on the respective agreements or franchise agreement;

 Provides that, in cases of sublet of the property by the franchisor to the franchisee, the amount of the rent to be paid may be higher than the amount that the franchisor pays the property owner on the lease originating from the commercial site, provided that:

i. this possibility is expressed in franchise offer circular and in the contract; and

ii. the excess amount paid to the franchisor in the sublet does not carry excessive burden on the franchisee, ensuring the maintenance of the economic and financial balance of the sublet during the term of the franchise agreement;

Vetoes Article 6 of Law 8.955 of December 15, 1994, which stipulated that “The franchise agreement must always be written and signed in the presence of 2 (two) witnesses and will be valid regardless of being registered with the notary’s office or public body.”

 Requires that franchise agreements also follow the conditions that:

i. in the case of international franchise agreements, they must be originally written in Portuguese or have the certified translation into Portuguese funded by the franchisor, and contracting parties may opt in the contract for the jurisdiction of one of their countries of residence ;
ii. the parties may elect an arbitration award to resolve disputes related to the franchise agreement;
iii. if the option to use a jurisdiction outside of the country is specified in the international franchise agreement , the parties shall constitute and maintain a legal representative or attorney duly qualified and domiciled in the country of the defined jurisdiction, with the power to represent them administratively and judicially, including to receive summonses.

 Establishes that the franchise offer circular must contain the following information on the franchise candidate in article 2 of the new Law:

complete list of all franchisees, subfranchised or subfranchisers of the network and, also, of those who left in the last 24 (twenty-four) months, with their names, addresses and telephone numbers;

information related to the territorial  operations policy, which should specify:
c ) if there are and, what, the rules are regarding territorial competition between owned and franchised units;

indication of what is offered to the franchisee by the franchisor and under what conditions, as regards:
a) support;
d) incorporation of technological innovations in franchises;
h) layout and architectural standards of franchisee facilities, including physical arrangement of equipment and instruments, detailed specifications , composition and sketches;

indication of the existence or otherwise of transfer or succession rules and, if so, what they are;

indication of the circumstances in which penalties, fines or indemnifications are applied and their respective values, established in the franchise agreement;

information on the existence of minimum purchase quotas by the franchisee with the franchisor, or third parties designated by the franchisor, and the possibility and conditions for the refusal of products or services required by the franchisor;

indication of the existence of a board or association of franchisees, with the attributions, powers and mechanisms of representation before the franchisor, and details of the competencies for management and supervision of the application of existing funds and resources;

indication of the rules limiting competition between the franchisor and the franchisees, and among the franchisees, during the term of the franchise agreement, and details of the territorial scope, as well as the term of the restriction and the penalties for non-compliance;

precise specification of the contractual term and renewal conditions, if any;

place, date and time to receive the proposed documentation, as well as to start opening the envelopes, when it is a public body or entity.

The new Law will come into force 90 days after December 27, 2019.

Our Intellectual Property team is available to provide further information and clarification on this matter.