In Malaysia, the franchise is governed under the Franchise Act 1998. This Act has gone through two major amendments in 2012 and the amendment in 2020. The Franchise Agreement is provided for under section 18 of the Act. The said section 18 has been amended in particularly section 18 (3) and 18 (6) through the Franchise (Amendment) Act 2020 which came into force in 6th March 2020
However for the sake of clarity, so that my readers will understand the background of Section 18, I shall put below section 18 before the amendments hereinbelow:-
18(1) A Franchise agreement shall be in writing
18(2) Franchise agreement shall contain but not limited to
18(3) Failure to comply with subsection (2) shall render a franchise agreement null and void.
18(4) A franchise agreement shall have a cooling off period, which shall be determined by both contracting parties but shall not be less than seven working days, during which the franchisee has the option to terminate the agreement.
18(5) Upon termination of the franchise agreement under subsection (4), an amount to cover the reasonable expenses incurred by the franchisor to prepare the agreement may be retained by the franchisor from the initial fees paid under section 19; however, all other moneys shall be refunded to the franchisee.
18(6) A person who fails to comply with subsection (5) commits an offence.
Perusing the above, without doubt, section 18(3) makes the Franchise Agreement, null and void should there be non-compliance.
Further, Section 18(4) provides for a “cooling off period” statement of not less than seven working days during which the franchisee has the option to terminate the Franchise Agreement. A sample of such clause is mentioned below:-
“The Franchisee shall be entitled at its sole and absolute discretion to terminate this Agreement by giving written notice to the Franchisor within Fourteen (14) business days from the Commencement Date.”
Upon termination under section 18(4), subsection (5) allow reasonable expenses incurred by the franchisor in preparing the franchise agreement and balance of whatever money paid by the applicant shall be returned to him.
After the amendment in 2020, section 18(3) was removed making the franchise agreement to continue to subsists even though non-compliance of section 18(2) or 18(4).
However, franchisors should not “rest in your laurels” and be happy by the removal of section 18(3) as there is a quasi criminal action when section 18(6) was amended by removing the words “subsection (5)” and replace with the word “this section” under section 14 Franchise (Amendment) Act 2020 which means that the new amendment allows the complainant to seek legal recourse through the Registrar of Franchise should there be non-compliance of section 18 rendering such non-compliances as an offence.
For example a clause on territorial rights or cooling off statement not mentioned in the Franchise Agreement making it non-complied thus making it an offence, punishable with a fine of up to RM50,000 for a body corporate and for non-body corporate, a fine of up to RM25,000.00 and/or an imprisonment for a term not exceeding six months. For subsequent offences, the penalty will be increased under the general offences section 39 Franchise Act 1998.
Please note that upon sentencing, the Court may also declare that the franchise agreement to be null and void upon a request by the Prosecution.
However, to-date, there is no reported case of any franchisor being prosecuted under the Franchise Act 1998. Don’t be the first.
