Defining When a Franchise Agreement Begins

Business owners starting to build a franchise network often set the duration of the relationship without explaining when that period begins. Yet the agreement may be signed, system access provided and the outlet opened on different dates. This ambiguity can shorten the period during which franchisees can exercise their business rights, or trigger obligations before the necessary facilities are available. Before offering an agreement to prospective franchisees, establish timing provisions that both parties can understand, calculate and verify.

1. Distinguish between key dates in the franchise relationship

Do not use a single term, such as “start date”, for every activity. First, identify the events that have different consequences for the relationship:

• Signing date: when the parties sign the agreement using the agreed procedure.
• Effective date of the agreement: when the agreement’s provisions become binding, as specified in its wording.
• Start date for particular rights: for example, access to training, use of the system or use of the brand to prepare the outlet for opening.
• Start of the operating term: the date from which the outlet’s operating period is calculated, if this is separate from the effective date.
• Expiry date: the date on which the rights granted end, calculated on the agreed basis.

This distinction does not mean that every agreement must have five different dates. The aim is to ensure that each right and obligation has a clear starting point.

For example, confidentiality obligations may apply from the agreement’s effective date, while the right to serve customers under the brand may only be exercised once the opening requirements have been met. A delay to the start of the operating term should not be interpreted as postponing all of the parties’ obligations.

2. Set the timetable within Indonesia’s legal framework

Indonesia specifically regulates franchising through Government Regulation No. 35 of 2024 on Franchising. Among other things, this regulation requires franchise agreements to set out their term, the parties’ rights and obligations, and the procedures for paying fees. The relationship is based on the parties having equal legal standing and is governed by Indonesian law.

The requirement to specify a term needs to be translated into workable contractual wording. A statement that an agreement is “valid for a number of years” is of limited help if the event that starts the clock is unclear. Defining the trigger date and the evidence supporting it is recommended contract-drafting practice, rather than a specific date format required by the regulation.

There is also a legal sequence to observe. The franchisor must hold a Franchise Registration Certificate (Surat Tanda Pendaftaran Waralaba, or STPW) before entering into a franchise agreement. The franchise offering prospectus must be provided to the prospective franchisee at least 14 calendar days before the agreement is signed.

The franchisee, meanwhile, must hold an STPW before starting business operations. An opening date in a commercial plan must therefore not be treated as automatic authorisation to operate. Distinguishing between the effective date and the start of operations does not remove these registration or prospectus disclosure obligations.

3. Choose a basis for calculating the term that suits the business

Several approaches can be discussed with a legal adviser. Choose one based on the business’s actual needs, then explain its implications to prospective franchisees before signing.

Calculating the term from the agreement’s effective date. This approach makes the expiry date easier to establish. However, the time spent preparing the outlet reduces the period available for trading. Business owners should make this clear, particularly where preparing the premises and installing equipment will take a significant amount of time.

Calculating the operating term from the outlet’s opening. This approach separates the preparation period from the period available for operating the outlet. The challenge is defining “opening”: does it mean serving the first customer, holding a soft opening or staging the official launch? Without a definition, the parties may use different dates.

Stating the preparation period and operating term separately. The agreement can specify the rights available during preparation and the operating period that follows a particular event. If this approach is used, explain how these periods relate to the agreement’s overall term. Avoid wording that suggests operating rights continue after their contractual basis has expired.

Test the chosen approach against plausible scenarios. For example, the outlet may already be serving customers during a soft opening, with the official launch taking place later. The agreement should give the same answer about the start date, whoever reads it.

4. Document the dates and cross-check the records

Once an approach has been chosen, decide what evidence will record the triggering event. For the start of operations, for example, use a formal record identifying the outlet, the date of the event, the basis for determining that date and the parties authorised to confirm it. This record serves as evidence of implementation, not as a means of changing the term unilaterally.

Next, check that all documents and administrative systems are consistent:

• Does the payment schedule use the same starting point as the payment clause?
• Do system access and permission to use the brand match the relevant stage of the relationship?
• Does the expiry date in the offer summary match the calculation set out in the agreement?
• Are the finance and operations teams recording the same dates?

Avoid entering an expiry date manually without checking how it should be calculated. If the parties sign on different days, the agreement should also explain which date is used as the reference point.

Practical step: prepare a one-page timeline showing each event, its trigger date, the supporting evidence and its contractual consequences. Ask the legal, finance and operations teams to review it together before the agreement is used to recruit franchisees.