Key changes to Malaysian franchise law
The main law governing franchises in Malaysia is the Franchise Act 1998 (FA). The FA which was recently amended via Franchise (Amendment) Act 2022 (FAA) introduced additional requirements on franchise operations in Malaysia.
1. Registration requirement for foreign franchisors
A franchisor is required to register his franchise with the Registrar of Franchises (ROF) (currently the Franchise and Direct Selling Development Division of the Ministry of Domestic Trade and Consumer Affairs) before operating a franchise business or making an offer to sell the franchise to any person. This applies to both local and foreign franchisors. Foreign franchisors remain bound to obtain prior consent from the ROF if it intends to sell a franchise in Malaysia or to any Malaysian citizen (ie. before entering the Malaysian market).
2. Term of franchise registration
Previously, the validity of registration of a franchise is for an indefinite period where it will continue to be effective unless the ROF suspends, terminates or cancels the registration. Now, the validity of registration of a franchise is only for 5 years. A franchisor may apply to the ROF to renew the same within 30 days from the expiration of the registration. Note this requirement applies to existing registrations though it is unclear, at this point, how the ROF will compute the 5-year term for existing registrations.
3. Mandatory provisions in a franchise agreement
Certain mandatory provisions (eg. agreement to be in writing, franchisee’s rights to use intellectual property, franchise assignment conditions, cooling off period of at least 7 working days, effect of termination or expiration etc) are required to be included in the franchise agreement – this has not changed. Previously however, failure to do so renders the franchise agreement null and void. This position is reversed where failure to do so will now result in an offence. That said, it is worth noting that the court has, among other things, powers to declare the franchise agreement null and void.
4. Display registration
A franchisor or franchisee must display the registration of the franchise in a conspicuous position at its place of business.
5. Others
Along with the FAA were also introduction of various new/amended regulations catering to compoundable offences, qualifications of a franchise broker and franchise consultant, manner of appeal against ROF decisions, as well as schedule of forms and fees to be submitted to the ROF.
Franchisors and franchisees are reminded to ensure compliance with these additional requirements.