Franchising in the Philippines: Your Right to Withdraw After Signing

Before buying a franchise, ask not only how to get started, but also whether you can change your mind after signing. In franchising, it is important to understand the cooling-off period: the specified time in which you can review the agreement and exercise your agreed right to withdraw. This is not the same as cancelling a reservation before signing or terminating an agreement because of a breach.

1. Understand the protection under EO 169

The Philippines does not have a single comprehensive law covering every aspect of franchising. However, Executive Order No. 169 of 2022 provides specific protections for franchisees that qualify as micro, small and medium-sized enterprises.

A cooling-off provision is among the minimum terms required in agreements covered by the order. Its purpose is to give buyers an opportunity to assess the financial and legal implications of the agreement before fully committing. The order also sets requirements for disclosing fees and registering agreements with the Department of Trade and Industry (DTI).

Do not assume that the same fixed number of days automatically applies to every brand. Read the actual provision and have it reviewed to check whether its duration and the procedure for exercising the right comply with the applicable rules. Simply stating that you “may withdraw” is not enough if there is no clear process.

The Civil Code also governs obligations and contracts. Under Article 1306, parties may agree their own terms, but these must not conflict with the law, morals, good customs, public order or public policy. Not everything written into a contract is therefore automatically legally valid.

2. Establish when the period starts and ends

Ask for the full draft before signing and identify the precise event that triggers the cooling-off period. Is it the date you sign, the date both parties have signed, the date you receive the complete agreement or the date you make a payment? If these dates differ, there may be a dispute over the final day for withdrawal.

The contract should answer the following questions:

• How many days are allowed, and are they calendar days or working days?
• What happens if the final day falls on a public holiday or a non-working day?
• To whom must notice be sent, and by what method?
• Is sending notice before the deadline sufficient, or must it have been received by then?
• Is there a specific form to use or any documentation to attach?

For example, you might sign today but receive the signed copy only several days later. If the clock started when you first signed, you would have less time in practice to review the agreement. Clarify this in advance.

Keep the signed agreement, proof of receipt and all messages relating to the dates. Do not rely solely on verbal explanations from the salesperson.

3. Clarify refunds and any obligations that remain

A right to withdraw should not be mistaken for an unconditional promise of a full refund. You need to check what the contract says and whether it complies with the law. Ask for a breakdown of every payment and how each will be treated if you exercise your right to withdraw.

Get written confirmation of:

• Which payments will be refunded and which may be subject to deductions;
• Which actual costs may be deducted and what supporting evidence is required;
• When and how the remaining amount will be refunded;
• How equipment, stock and branded materials already delivered will be dealt with.

Be wary of broad wording such as “all costs incurred” if there is no explanation or way to verify those costs. Also have any provision reviewed if it imposes deductions so large that they effectively make the right to withdraw meaningless.

In addition, separate contracts are not automatically cancelled when you withdraw from a franchise agreement. You may still have obligations to a landlord, bank or shopfitting contractor. Where possible, avoid committing to expenditure you cannot recover while you are still reviewing the agreement, or negotiate terms that allow cancellation.

4. Use the period for a proper review

Do not treat the cooling-off period as a substitute for thorough due diligence before signing. Use it as a final opportunity to have your own lawyer read the agreement and an accountant assess your total financial commitments.

If you decide to withdraw, follow the written notice procedure. Identify the agreement, its date and the provision you are relying on. Ask for acknowledgement of receipt and a clear breakdown of the refund. Keep proof that you sent the notice; do not simply stop making payments and assume the relationship has ended.

Practical reminder: Before signing, make sure four things are clear: the deadline, the notice procedure, the amount refundable and any obligations that will remain. A right to withdraw is useful only if you understand how to exercise it.