Buying a Franchise in Malaysia: Understand Your Cooling-Off Rights

Signing a franchise agreement does not mean you should ignore doubts that arise afterwards. In Malaysia, the law provides a cooling-off period that gives prospective franchisees time to terminate an agreement after signing it. However, this right must be exercised within the correct timeframe and through the proper process. For anyone looking to join a franchise network, reviewing this clause is just as important as assessing whether the brand is a good fit.

1. Understand your statutory rights

Malaysia has specific legislation governing franchising: the Franchise Act 1998 [Act 590], including amendments in force. Section 18(4) requires franchise agreements to provide a cooling-off period of at least seven working days. During this period, the franchisee has the option to terminate the agreement.

Section 18(5) provides that, where an agreement is terminated during the cooling-off period, the franchisor may retain money to cover reasonable expenses incurred in preparing the agreement. Other money paid must be refunded to the franchisee. Do not, therefore, assume that this right guarantees a full refund of every payment made to every party.

The cooling-off period is also distinct from the review period before signing. Under Section 15, the franchisor must provide the franchise agreement and disclosure documents at least ten days before the agreement is signed. The two periods serve different purposes: one allows an initial assessment, while the other gives you the option to terminate after signing.

If the draft states that all payments are non-refundable without exception, or makes no mention of a cooling-off period, ask a lawyer to review it before proceeding with the purchase. Do not accept a verbal explanation that the clause is merely a formality.

2. Establish the deadline and how to serve notice

Even a clear right can be difficult to exercise if the deadline is uncertain. Before signing, ask the franchisor to explain in writing how the cooling-off period is calculated under your agreement. Make sure the contract is not interpreted in a way that shortens the minimum statutory protection.

Review these four points with a lawyer:

• Start date: Which date starts the clock, particularly if the two parties sign on different days?
• Working days: How are weekends and relevant public holidays taken into account?
• Method of notice: Must notice be delivered by hand, sent by registered post or sent to a specific email address?
• Time of receipt: Does the contract distinguish between the date notice is sent and the date it is deemed to have been received?

Mark the deadline in your calendar and set reminders well in advance. Do not wait until the final day to seek advice or gather documents.

If you decide to terminate the agreement, your notice should state that decision clearly, identify the parties and the relevant agreement, and refer to your exercise of the cooling-off right. A request to “discuss things again” may not clearly communicate a decision to terminate. Keep evidence of both delivery and receipt; do not rely solely on telephone conversations.

3. Distinguish refundable payments from other commitments

Before making any payments, prepare a list recording the recipient, purpose, date and supporting documents for each transaction. Distinguish money paid to the franchisor from payments to suppliers, landlords or finance providers.

For money received by the franchisor, ask which expenses for preparing the agreement might be retained if you exercise your cooling-off right. Request a breakdown and an explanation of how the amount is calculated. A label such as “administration fee” does not, on its own, establish that the entire deduction is reasonable or falls within the category permitted by law.

Also ask for an explanation of the refund process: who handles requests, what documents are required and when payment is expected. Distinguish any target timeframe agreed in the contract from obligations imposed by law.

Terminating the franchise agreement does not necessarily cancel other contracts. Equipment orders, refurbishment work and finance agreements may have their own cancellation terms. Deposits paid to third parties are not necessarily covered by the refund provisions of the Franchise Act either.

The most cautious approach is to postpone commitments that are difficult to cancel until you are certain about proceeding with the purchase. If an advance payment is unavoidable, obtain the refund or cancellation terms in writing first.

4. Use the cooling-off period to make a considered decision

The cooling-off period is not a substitute for due diligence before buying. Use it to resolve important outstanding matters, rather than to start your research from scratch.

Prepare a short checklist covering unresolved issues, the evidence needed, who must respond and your decision deadline. For example, if the payment amounts in the agreement differ from those in an earlier written offer, obtain an explanation and have the discrepancy corrected before the period expires.

If the franchisor asks you to wait for a response, do not assume that discussions stop the clock. Equally, do not assume that a refund request alone amounts to sufficient notice of termination. Seek prompt legal advice if your rights or the deadline are disputed.

Keep the signed agreement, receipts, correspondence and all versions of your notice in one file. Well-organised records make it easier for a lawyer to review the matter and for you to raise queries with the Registrar of Franchises if compliance issues arise.

Practical takeaway: Before signing, make sure you know three things: when the cooling-off period ends, how notice must be served and which deductions are permitted. This clarity will help you join a franchise network with greater confidence in your decision.