Buying a Franchise in Malaysia: Understanding the Cooling-Off Period

Signing a franchise agreement does not mean giving up your statutory right to withdraw. If you are considering buying a franchise in Malaysia, you should understand the cooling-off period before committing, rather than waiting until you have changed your mind. Checking the details will help you establish when you can exercise this right, how to serve notice and how much money you may get back.

1. Distinguish the cooling-off period from the document review period

Malaysia regulates franchising through the Franchise Act 1998 [Act 590], as amended, including the 2020 amendments. Prospective franchisees need to understand two distinct time-based protections.

Under Section 15, the franchisor must provide the prospective franchisee with the disclosure document and a copy of the franchise agreement at least 10 days before the agreement is signed. This is an opportunity to review the offer before you are bound by it, not a cooling-off period after signing.

Section 18, meanwhile, requires the franchise agreement to include a cooling-off period agreed by the parties, lasting no fewer than seven working days. During this period, the franchisee has the option to terminate the agreement.

Do not combine these two periods into a single calculation. If a sales representative says that the time spent reviewing the documents replaces the cooling-off period, ask for a written explanation and consult an independent lawyer. Likewise, do not assume that seven calendar days necessarily meet the requirement for seven working days.

The cooling-off period is no substitute for due diligence. You should still assess the brand, your financial capacity and the suitability of the business operations before signing. This right provides additional protection if you need to reconsider your decision.

2. Confirm the dates and how to serve notice

Before signing, locate the cooling-off clause in the draft agreement. Read it alongside the provisions on definitions, the effective date and service of notices. If the parties sign on different days, ask a lawyer to clarify which date determines when the period begins.

Prepare a simple schedule recording:

• The date you received the disclosure document and a copy of the agreement.
• The signing date and the stated effective date.
• The start and end dates of the cooling-off period.
• The required method of serving notice and the recipient’s address.
• The proof of dispatch or receipt you need to retain.

Ask how working days are calculated when weekends or public holidays fall within the period. Do not guess, particularly if the franchisor’s office and your premises are in different Malaysian states.

Check whether the contract permits notice by email, hand delivery or registered post, and when notice is deemed to have been received. A phone conversation with a sales representative may not satisfy the contract’s notice requirements. If you decide to withdraw, seek help drafting a clear notice and do not leave it until the last minute.

Keep copies of the signed agreement, the notice and the acknowledgement of receipt together in one file. These records will help demonstrate that your decision was communicated within the relevant period.

3. Understand refunds and expense deductions

Under Section 18, when an agreement is terminated during the cooling-off period, the franchisor may retain money to cover reasonable expenses incurred in preparing the agreement. The remaining money must be refunded to the franchisee.

This does not mean that every payment labelled non-refundable necessarily falls outside this protection. Equally, do not assume that all money paid to every party will automatically be returned.

Ask the franchisor to explain in writing:

• The payments received and the purpose of each payment.
• The types of agreement preparation expenses that may be deducted.
• How deductions are calculated and what supporting documents are available.
• The refund request process and the proposed processing timeframe.

If a deduction is stated as a fixed sum without explanation, request a breakdown and ask a lawyer to assess whether it is consistent with the Act. Do not accept general descriptions such as “administration costs” without understanding the expenses actually incurred.

Distinguish between money paid to the franchisor and payments made to a landlord, contractor or independent supplier. The right to terminate a franchise agreement during the cooling-off period does not necessarily cancel separate contracts with those parties.

4. Limit additional commitments until the period ends

Before signing, list all actions scheduled to take place immediately afterwards. For example, will you need to authorise refurbishment work, order bespoke equipment or pay for third-party services before the cooling-off period expires?

For each action, record who will receive the money, the cancellation terms and any losses you may still face if you withdraw. Where negotiable, defer commitments that are difficult to cancel until the cooling-off period has ended. Any postponement must be agreed in writing so that you do not breach the contract’s implementation timetable.

If the cooling-off clause is missing, too short or inconsistent with what you were told during the sales process, do not sign on the assumption that the problem can be fixed later. Request corrections and a legal review first. Do not assume that a deficient clause alone allows you to disregard all your obligations without taking advice.

Practical takeaway: Before buying, make sure you have a confirmed deadline, clear notice requirements and an explanation of any deductions from your refund. Treat the cooling-off period as a meaningful safeguard, not merely a line in the contract.