A brewery contract often offers a hospitality operator a crucial financial start, but the quid pro quo - the beverage purchase obligation - goes to the heart of a fundamental legal and economic tension. A clause that requires you as a business owner to purchase exclusively from one supplier for a long period of time is, by definition, a restriction on free competition. After all, it ‘closes off’ your outlet to competing brewers.
So why aren't these widespread contracts simply banned? The answer is complex. Both the European and Belgian competition law recognizes that such ‘vertical’ agreements (between a supplier and a buyer at different levels of the chain) can have economic benefits. For example, they can make distribution more efficient and allow the brewer to invest in your business.
However, to prevent large brewers from ‘foreclosing’ the entire on-trade market (so-called ‘market foreclosure’) and making it impossible for new or smaller players to market their products, the legislature has set strict and mandatory limits.
The most important limit of all is the duration of the bond. A contract that binds you for too long may be (partially) void, with far-reaching consequences for your obligations and the loan you received. Below we explain how competition law in Belgium determines the maximum duration of your brewery contract.
The basic rule: the general prohibition on restriction of competition
The legal basis is twofold, but nearly identical:
- European law: Article 101(1) of the Treaty on the Functioning of the European Union (TFEU).
- Belgian law: Article IV.1(1) of the Code of Economic Law (CEL).
Both articles prohibit all agreements between companies that prevent, restrict or distort competition in the (Belgian or internal) market.
A brewery contract with an exclusive purchase obligation basically falls directly under this prohibition. It limits the commercial freedom of the buyer (you) and, more importantly, it closes off access to your point of sale to competing suppliers.
The penalty for violating this prohibition is drastic: the contract is void by operation of law (Article 101(2) TFEU and Art. IV.1(2) CEL). This means that the contract is deemed to have never existed.
The ‘safe harbor’: the Vertical Agreements Block Exemption (VBER)
In practice, almost all brewery contracts are valid anyway. This is because they can escape the ban through a so-called block exemption.
The most important is the European Block Exemption Regulation for Vertical Agreements (Regulation (EU) 2022/720, also known as ‘VBER’). This regulation creates asafe harbor. If your brewery contract meets all the conditions of this regulation, it is automatically presumed to be in compliance with competition law. The brewery then does not have to prove individually that the contract does not harm competition.
The two main conditions for falling into this safe harbor are:
- The market share threshold: Neither the brewery (supplier) nor the horeca establishment (buyer) should have a market share of more than 30% in its respective relevant market.
- No ‘hardcore restrictions. The contract must not contain any of the most severe restrictions on competition (e.g., imposing fixed sales prices or absolutely prohibiting sales to certain customers).
The 30% threshold and the ‘relevant market’: a complex puzzle
The 30% threshold seems obvious, but in practice it is a source of endless legal debate. After all, to calculate a market share, you must first define the ‘relevant market.
- The relevant product market: Is the market “lager,” “all beers,” or “all beverages sold in the hospitality”?
- The relevant geographic market: Is it local, regional, or national (Belgium)?
- The relevant distribution channel: This is the most crucial. It splits the market into ‘on-trade’ (sales for on-site consumption, or Hospitality) and ‘off-trade’ (sales in supermarkets/beverage centers).
A large brewery could easily have a total market share of 25%, but a market share of 40% in the on-trade (Hospitality) channel. If that is the case, their brewery contract with you falls outside the safe harbor of the VBER.
Does this mean the contract is automatically void? No. It means that the contract is no longer automatically protected and must be examined individually. This opens the door for you to argue that the specific contract, in the context of all of that brewery's other contracts, shields the market too much.
The heart of the VBER: the maximum duration of your bond
For most hospitality operators, the most relevant condition from the block exemption is the maximum duration of the exclusive binding.
The general rule: an iron limit of 5 years
Article 5(1) of the VBER is crystal clear: a non-compete agreement (which is what an exclusive purchasing obligation legally is) cannot exceed five years.
- A exclusive purchasing obligation is defined in the VBER as any obligation that causes the buyer to purchase more than 80% of its total purchases of the contract products from the supplier.
- This limit of 5 years is an economic-legal balance: it gives the brewery enough time to recoup its investment in your business (the loan, the tap system), but avoids closing the market to competitors for an excessively long time (more than 5 years).
What if you sign a contract for 10 years, with an exclusivity clause?
- The exclusivity clause falls outside the safe harbor.
- This clause is then individually tested against the prohibition of Article 101 TFEU / IV.1 CEL.
- In practice, courts almost always rule that an exclusivity clause that exceeds 5 years, without justification, is void is for the portion that exceeds 5 years. You are then released from your purchase obligation after 5 years.
Beware of tacit renewal
The 5-year rule also applies to contracts that are tacitly renewed. A 3-year contract that is tacitly renewed and so de facto becomes indefinite, falls outside the safe harbor once the total duration exceeds 5 years.
The big exception: link to lease of the property
So why do so many brewery contracts exist that last 9, 18 or even 27 years? The answer lies in Article 5(2) of the VBER: the so-called ‘Hospitality Exception.
This provision states that the 5-year limit does NOT apply if the beverages are sold from premises (real estate) leased or owned by the supplier (the brewery) to the purchaser (you).
In that particular case, the exclusive purchase obligation may last as long as the lease (or more accurately, as long as you operate the premises).
The perfect match with Belgium's Commercial Lease Law
This is the legal and economic reason why breweries have historically purchased hospitality properties en masse. They act as landlords.
- The Belgian Commercial Lease Law provides for a minimum duration of 9 years.
- The brewery offers a 9-year commercial lease.
- At the same time (and linked to it) you sign a brewery contract with an exclusive purchase obligation for 9 years.
This is perfectly legal under the VBER. The brewery provides a highly capital-intensive asset (the premises) and in return is allowed to secure the sale of its beverages in those premises for the duration of the lease. Upon a lease renewal (to 18, 27 years), the brewery lease can also be legally renewed along with it.
The crucial pitfall: loan is not rent
This is where many operators and even some suppliers make a capital mistake. What if the brewery is not the landlord of the property, but only gives you a loan or provides expensive equipment?
- Example: You rent yourself a property from an individual. You go to a brewery for financing. The brewery gives you a loan of €20,000 and installs a tap system worth €10,000 (on loan ). To “recoup” this €30,000, the brewery imposes a 10-year exclusivity contract on you.
This contract is NOT VALID in terms of duration.
The exception of Section 5(2) VBER applies only to the provision of the real property (the premises). It applies explicitly not for the provision of movable property (tap systems, refrigerators, furniture) or for a simple money loan.
An exclusive brewing contract that is solely linked to a money loan or loan of equipment is therefore subject to the general rule of a maximum term of five years. The exclusivity clause in the sample contract is void for the 5 years that exceed the limit.
The penalty: what if your contract violates the rules?
The sanction for violating competition law (Art. 101 TFEU / IV.1 CEL) is drastic: the prohibited clause is automatically and absolutely void.
- A void clause is deemed never to have existed.
- So you can stop complying with the (overly long) exclusivity overnight, without the brewery being able to seek damages for breach of contract.
This raises complex follow-up questions. If the exclusivity (lasting too long) is void, what happens to the rest of the contract? What about the loan? Can the brewery recover it immediately because the ‘cause’ of the loan (the exclusivity) has gone away?
This depends on whether the contract can survive without the void clause (partial nullity). This is complex legal matter. The important thing to remember is that a violation of the 5-year rule gives you extreme bargaining power. The brewer will usually want to avoid an expensive and uncertain lawsuit and be much more willing to reach an amicable settlement (e.g., revision of the contract).
Conclusion: duration is your strongest weapon
Competition law is mandatory law; you cannot derogate from it contractually. It protects you from an overly stifling and lengthy bond.
Therefore, remember these three rules of thumb:
- Default rule: An exclusive purchase obligation may last up to 5 years.
- Exception: If the brewery is also your landlord of the property, exclusivity may be tied to the length of the lease (e.g., 9 years).
- The big trap: A loan or ‘borrowing’ a tap system is not rent and thus never justifies a duration longer than 5 years.
A contract in Belgium that violates these rules is (partially) void. This gives you the freedom to renegotiate or purchase beverages from competitors.
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