Franchising in the Philippines: When the Master Licence Ends

You may be dealing with a local company when buying a franchise, but its authority to expand the brand may come from another company. If that underlying agreement ends, your outlet could be affected even if all your payments are up to date. For anyone investing in a franchise, it is important to establish who will maintain your right to operate if the relationship further up the chain breaks down.

1. Find out whether your contract depends on another agreement

Master franchise arrangements are common in the Philippines. The brand owner grants a local master franchisee rights for a particular territory, which may include allowing other businesses to use the franchise system. The scope of those rights is not necessarily the same for every local franchisor.

The question is not simply whether the company is authorised to sign today. You need to know how long that authority lasts and what happens to you if it ends.

Ask for explanations and supporting evidence on the following points:

• When does the master agreement expire?
• Does it permit the company to grant franchises to other businesses?
• Does it cover the full term being offered to you?
• Are there conditions that could bring those rights to an early end?
• Does your outlet need separate approval from the brand owner?

The full master agreement may be confidential. As an alternative, ask for relevant extracts or direct written confirmation from the brand owner. Have a lawyer assess whether the documentation adequately substantiates the rights being promised.

2. Understand the law, but do not assume someone will automatically take over

The Philippines has no single comprehensive law covering every aspect of franchising. General contract law under the Civil Code applies. Article 1306 allows parties to agree contractual terms, provided these do not contravene the law, morals, good customs, public order or public policy.

Executive Order No. 169 of 2022 also provides protections for micro, small and medium-sized enterprises taking on franchises. These include minimum terms for contracts within its scope and registration of relevant agreements with the Department of Trade and Industry (DTI). It does not guarantee that the brand owner will assume all the local franchisor’s obligations.

Republic Act No. 8293, or the Intellectual Property Code, is also relevant. For agreements that qualify as technology transfer arrangements, Section 87 sets out prohibited clauses and Section 88 specifies mandatory provisions. Have a lawyer check compliance with these requirements and any exemptions that may be needed.

Do not assume that having a contract with the local company gives you a direct right to compel the brand owner to continue it. The agreements themselves, and the parties bound by them, need to be examined.

3. Ask for a clear continuity arrangement

Before paying, establish whether there is a mechanism to transfer your contract to the brand owner or a newly authorised franchisor if the master licence ends. A promise that “someone else will take over” is not enough.

Get written confirmation of who may take over, what events will trigger the mechanism and whether your consent is required. If the protection depends on the brand owner, there should be a document recording its agreement—not merely a promise from the local company.

It should also be clear whether your remaining contract term, fee levels and scope of support will be preserved. Ask whether the transfer will involve a new upfront fee or compulsory equipment replacement.

Notice matters too. Ask for clear terms specifying when you will be notified of the termination or non-renewal of the master licence, who will notify you and what information you will receive. This reduces the risk of suddenly finding yourself without supplies or permission to use the brand.

4. Prepare your outlet for the transition between franchisors

Even if a replacement is in place, there may be a gap before operations run smoothly. Draw up a list of essential requirements: supplies, access to the point-of-sale system, use of the brand, training and technical support.

For each item, record who is responsible during the transition and for how long. Also clarify how advance payments, undelivered products and obligations to customers will be handled. Do not assume that all of these will automatically transfer to the new company.

If continuity is uncertain, have the potential costs of closure calculated and seek legal advice on realistic options for pursuing a claim. Having a right to compensation is not the same as knowing that the party liable can afford to pay.

Practical reminder: Before buying, ask for evidence of the master licence’s duration, a written continuity mechanism and clear responsibilities during any transition. Without these, treat the loss of the licence as a genuine risk to your investment.