Franchising in the Philippines: Check Your Renewal Rights

Before buying a franchise in the Philippines, find out what happens when the initial contract expires. The outlet may be performing well, but that does not guarantee it can continue trading under the same brand. Both parties need to be clear about what to expect: do you have an actual right to renew, or merely an opportunity to submit a new application? That distinction makes a significant difference when planning your investment.

1. Distinguish the right to renew from permission to apply

Read the renewal clause itself. “May request renewal” is not the same as “has the right to renew if the conditions are met”. In the first case, the franchisor may retain broad discretion to refuse. In the second, you need to establish whether the conditions are clear and measurable.

Look for answers to these questions:

• How long will the next contract term be?
• How many times can you renew?
• Who makes the decision, and on what basis?
• Must you have no history of breaches at all, or simply no outstanding breaches that have not been remedied?
• Can the application be refused even if all the listed conditions have been met?

Be wary of vague standards such as “satisfactory performance” if there is no explanation of how they are measured. Ask which documents will be used to assess compliance and who will review them. The aim is not to secure a guarantee that the business can continue indefinitely, but to establish a clear process you can prepare for.

2. Understand the laws relevant to renewal

The Philippines has no single comprehensive law covering every aspect of commercial franchising. However, specific rules and general laws do apply.

Executive Order No. 169, series of 2022, sets out protections for micro, small and medium-sized enterprises taking on franchises. Renewal provisions are among the minimum terms required in agreements covered by the order. This should not be interpreted as automatically obliging the franchisor to renew; the actual conditions in the agreement remain important.

Under Article 1306 of the Civil Code, parties may set contractual terms provided these do not conflict with the law, morals, good customs, public order or public policy. A clause granting excessively broad or vaguely defined discretion to refuse renewal should therefore be reviewed by a lawyer.

If the agreement falls within the rules on technology transfer arrangements, the Intellectual Property Code is also relevant, particularly the prohibited and mandatory clauses under Sections 87 and 88. A new version of the contract may require a fresh review.

Do not confuse a commercial franchise with a franchise granted by the Philippine Congress. The 50-year limit associated with public utility franchises is not a general rule governing the length of a franchise outlet’s contract.

3. Calculate the cost of continuing

It is not enough to know whether renewal is possible. Find out how much it will cost. There is no general statutory cap on franchise fees, royalties or service fees; the agreed terms matter, subject to applicable law.

Ask for a written explanation of whether the renewal fee is fixed, calculated using a formula or based on the price in force on the application date. If the amount cannot yet be determined, negotiate a clear calculation method and sufficient advance notice.

Also establish whether you will have to sign the franchisor’s “then-current standard agreement”. This may change the royalties, other charges and obligations. Keeping the same brand and location does not mean the financial terms will stay the same.

Prepare two forecasts with your accountant: one for continuing on the current terms, and another allowing for higher costs. Include the renewal fee, legal review and any newly required expenditure. Do not base recovery of your initial investment on a period that the contract does not yet guarantee.

4. Create a timetable before signing

You could lose the opportunity to renew simply by giving notice too late. Record the application deadline, the required delivery method, the correct recipient and the supporting documents. Establish when the franchisor must respond and what happens if no response arrives.

Also ask whether you can continue operating while the application is being considered. Do not assume that accepting payments or continuing to supply products amounts to a new contract. Obtain a clear written agreement covering any temporary continuation.

Before making a payment, prepare a one-page checklist of the conditions, dates, fees and required approvals. Have it reviewed alongside the full contract, not as a substitute for it.

Practical takeaway: Base your purchase on the term expressly secured by the contract. Treat renewal as a separate decision requiring clear rights, reasonable costs and timely action.