An brewery contract is rarely signed purely for the delivery of beer. The heavy and lengthy beverage purchase obligations rarely stand alone. They are the direct consideration for a package of significant economic benefits offered by the brewery or liquor retailer. It is precisely these ‘benefits’ that make the deal so attractive to a start-up seeking capital, or an established operator looking to renovate his business.
However, it is critical and strategic to understand that these are not gifts. Legally, each ‘benefit’ is a separate contract (or part of the overarching framework contract) with its own specific terms, obligations and pitfalls. These benefits create a deep financial, operational and legal nexus between you and the brewery.
Below we analyze the brewery's most common benefits: direct financial support (loan, ‘fonds perdu,’ guarantee), material support (loan) and the most far-reaching and binding of all: the commercial lease.
The direct financial injection: the ‘lubricant’ of the contract
The most direct and enticing way for a brewery to win over an operator is with financial support. It can take different forms, each with its own legal consequences.
1. The money loan
This is the most classic form. The brewery or liquor dealer provides a loan to the hospitality operator, often at a more favorable (or even no) interest rate than from a traditional bank. It is a ‘loan at interest’ or an ‘interest-free loan,’ intended for the purchase of the trade fund, financing renovations, or as working capital.
The trap lies in the inseparable link with the brewery contract:
- Duration: The term of the loan is almost always aligned with the term of the beverage purchase contract (e.g., 10 years).
- Reimbursement: Repayment can be made in several ways: through monthly repayments, or sometimes through a discount per hectoliter purchased.
- The sanctions clause: The contract will inevitably stipulate that in the event of a serious default under the brewery contract (e.g., failing to meet the minimum volume or purchasing from a competitor), the loan becomes immediately due and payable in full. This means you will have to repay the entire remaining amount in one lump sum, which is a financial death sentence for most hospitality businesses.
2. Non-repayable payment (‘fonds perdu’).
This is commercially the most attractive, but legally the most vicious construction. A ‘fonds perdu’ is presented as an amount that the brewery ‘donates’ or ‘benefits’ you. In principle, you do not have to pay it back. It is often used as a renovation bonus or commercial allowance.
However, the reality is that this amount is never unconditional. The contract will provide that the amount pro rata temporis (in proportion to elapsed time) is considered ‘vested.
- Example: You get a ‘fonds perdu’ of €20,000 for a 10-year contract. You quit after 6 years or commit breach of contract. The contract will then stipulate that you must immediately repay the 4/10ths of the amount not yet ‘earned’ (in this case €8,000).
- Legally, this is not a ‘gift’ (an act ‘for no consideration’), but a financial concession inseparable from the full and uninterrupted performance of your purchase obligation throughout the term.
3. Deposit or accessory personal security
A more indirect, but equally valuable, form of support is the surety bond. In this scenario, you borrow the required capital from a bank. However, the bank, which views the hospitality industry as risky, refuses to grant the loan without additional security.
The brewery then steps in and personally guarantees your loan. Should you no longer be able to pay the bank, the bank will turn to the brewery for the (remaining) debt.
This gives you as an operator access to bank credit that you would otherwise never get. Of course, the brewery only does this in exchange for an ironclad, long-term brewery contract. It creates a triangular relationship (you - bank - brewery) that further increases your dependency.
The material support: ‘free’ materials on loan
In addition to cash, the material fixtures of a hospitality business are also a very heavy cost. Therefore, breweries often offer to provide essential (and expensive) parts of the establishment.
The loan agreement (‘commodate’).
This is the legal term for providing equipment ‘free of charge. The brewery retains ownership at all times, but you may ’borrow‘ it as long as the contract is in place. The most common examples are:
- The complete tap installation (pipes, taps, refrigeration)
- Refrigerators, cold rooms and freezers (often with the brewery's logo)
- Parasols, patio furniture, glassware
- Illuminated advertising, signs and other ‘branding’
This is not legally a rental, but a loan (or ‘commodity’), because it is free is (legally: ‘for no consideration’). The advantages (lower investment cost) are obvious, but the liabilities and disadvantages are significant:
- Duty to use: Obviously, the equipment may only be used for the brewery's products. Connecting a competing beer keg to the brewery's tap system is a gross breach of contract.
- Maintenance obligation: As a ‘borrower,’ you are obligated to take care of the equipment as a ‘prudent and reasonable person. The question of who bears the cost of maintenance and repairs is often a source of dispute and should be clearly addressed in the contract.
- Immediate return obligation: At the end or termination of the contract (e.g., after 10 years, or in the event of bankruptcy or breach of contract), all material must be returned immediately and in good condition (normal wear and tear excepted). This can cripple a business operationally.
- The competition law trap: As on this page discussed at length, the brewery may grant the loan of this movable good (material) never invoke it as an argument to extend the exclusive purchase obligation beyond the maximum 5 years to last.
The commercial lease
The most sweeping, most common and structurally important achievement a brewery can offer is the property itself. Breweries have historically owned an immense patrimony of hospitality properties, often in absolutely prime locations.
Why is this the ultimate bond?
When the brewery leases the property to you, it creates a dual legal relationship that makes the dependency total:
- You are buyer (through the brewery contract).
- You are tenant (through the commercial lease).
In practice, these contracts are inextricably linked. A default under the brewery contract (e.g., failing to meet your quota or serving a competitor) will almost certainly also be invoked as a serious contractual default under the lease, which can lead to the judicial termination of the lease and your eviction.
This construction has one all-important advantage for the brewery: as we see on this page discussed, this is the only legally conclusive way to get around the maximum duration of 5 years (imposed by competition law). By linking the contract to a commercial lease, the exclusive purchase obligation can perfectly legally last 9, 18 or even 27 years.
The compelling protection of the Commercial Lease Act
Here, however, you are not powerless as an operator. As a landlord, the brewery is not allowed to write just anything in the contract. The Belgian Commercial Lease Law is of mandatory law.
This means that the law takes precedence over what is in your contract. Clauses that attempt to limit your legal protections as a tenant are void. You enjoy, even against a powerful brewery, the following crucial rights:
- Minimum duration: A commercial lease has a minimum term of 9 years. This provides you as an operator with considerable stability and time to recoup your investments. (A short-term commercial lease of up to one year is also possible since 2016, but much less common in this context ).
- Right to rent renewal: This is your most important right of all. Between the 18th and 15th month before the end of the 9-year period, you have the right to request (up to three times) a renewal of your lease.
- Limited grounds for refusal: The brewery landlord can only refuse this under strict, legally enumerated conditions (e.g., own use, heavy renovations, gross non-performance by the tenant, or a better offer from a third party that you don't want to match). Refusal without a valid reason (or because of renovations/own use) often requires the brewer to pay a heavy eviction fee, which can be up to 3 years' rent.
- Right to rent review: Every three years, both you and the landlord can ask the Justice of the Peace to review the rent, provided that the normal rental value has changed (due to new, unforeseen circumstances) by at least 15%.
- Right to renovations: You have the right to make renovations useful for your trade, as long as the cost does not exceed 3 years of rent and the stability or safety of the building is not compromised. The brewery may oppose this, but only for good cause.
- Transfer of rent and sublease: You may transfer your trade lease to the buyer of your trade. Although brewery contracts often try to prohibit this contractually, the law provides procedures to challenge an unreasonable refusal by the brewery.
The rights of the brewery landlord
As a landlord, the brewery obviously has strong rights as well. Most important is the unpaid landlord's privilege. If you don't pay the rent, the brewery has a priority position on the proceeds from the sale of your contents (‘everything that furnishes the premises’) to recover the overdue rent.
Other benefits: concession and discounts
1. The concession agreement
Sometimes the structure is not a lease, but a concession. This is a more complex legal framework where, for example, the brewery has the right to operate a commercial establishment (e.g., in a station, airport or cultural center) and gives this operating right ‘under concession’ to you as the operator. This often falls under the rules of the concession of exclusive distribution, but the specific conditions may differ greatly from a classic commercial lease.
2. Discounts
A final, common ‘benefit’ is discounts. These are often year-end rats or staff discounts. For example, you get a discount of X euros per hectoliter, which is only paid out at the end of the year if you have reached the agreed minimum volume.
This is not direct funding, but an incentive to meet the quota. The danger is that you already factor this discount into your business plan, but miss out on it (and even have to pay a penalty) if you narrowly miss the volume.
Conclusion
The ‘benefits’ offered by a brewery - loans, ‘free’ money, materials or the property itself - are the economic engine of the brewery contract. However, they are never free. They are the price the brewery pays to buy off your commercial freedom via an exclusive and long-term purchase obligation.
Each performance is a separate legal instrument that creates a deep dependency. Tying a commercial lease is the most far-reaching, as it allows the brewery to tie you down for decades. However, it is also the area where you are most protected in Belgium as an operator by mandatory legislation.
Have you received a proposal that combines a loan, ‘fonds perdu’ or a lease? It is vital to understand the interplay between these contracts before you sign.
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