Set Fair Terms Before Franchising Your Business

Before franchising your existing business in the Philippines, establish when you may offer special terms to a franchise partner. Your first applicant might ask for a discount, while the next might request more time to pay. If decisions are made only verbally, misunderstandings can easily arise. Within a franchise network, any differences in treatment need a clear and reasonable basis.

1. Understand the requirements for fair agreements

The Philippines has no single comprehensive law covering every aspect of franchising. However, specific regulations do apply: Executive Order No. 169, series of 2022, sets out mandatory provisions for agreements within its scope involving franchisees that are micro, small and medium-sized enterprises.

These include non-discrimination provisions, alongside disclosure of fees, the responsibilities of both parties, the duration of the agreement and other terms. There is also a related obligation to register agreements with the Department of Trade and Industry (DTI). Ask a lawyer to assess how these requirements apply to your franchise offering; a general statement that “our system is fair” is not enough.

The Civil Code also applies to contracts. Any special terms therefore need to be considered alongside both parties’ overall obligations, rather than as separate promises with no clear limits.

Differences in terms are not automatically prohibited. Equally, do not assume that every difference is acceptable simply because the franchise partner has signed the agreement. Sound reasons, clear criteria and proper legal review should guide your decisions.

2. Separate non-negotiable standards from flexible terms

Draw up a list of terms that cannot be relaxed and those that may be adjusted after review. The aim is to prevent anyone offering the franchise from promising an exception that could harm other outlets.

For example, required safety procedures or rules on proper use of the brand should not be waived in exchange for a quick signature. Payment schedules or additional support during opening, on the other hand, may be worth considering if you can deliver them and there is a clear basis for doing so.

For each possible exception, record:

• Terms: What exactly can be changed?
• Rationale: What circumstances or features of the offer justify the change?
• Eligibility: Which applicants or franchise partners may qualify?
• Limits: When will the special terms end?
• Approval: Who has the authority to decide?

If you offer a discount to your first group of franchise partners, define in advance who will qualify for that group. Do not change the criteria according to who negotiates hardest.

3. Test your reasoning against comparable situations

Before approving a request, ask: If another franchise partner were in the same circumstances, would we make the same decision? This can help identify favouritism before it becomes a complaint.

Suppose the opening of two outlets is delayed. In the first case, the franchisor has failed to deliver promised equipment. In the second, the franchise partner has not completed their own preparations. Different responses may be appropriate, but they should be based on verified facts and the agreement—not on a personal relationship with the owner.

Keep a simple decision log. Include the request, relevant obligations, evidence, reasons for approval or refusal, and any deadlines. You do not need to share every partner’s sensitive details with everyone else. What you do need to be able to explain is the general standard you apply.

Also assess whether you can deliver what you offer. If you provide extra visits to one outlet, make sure this does not divert support already promised to others.

4. Put exceptions in writing and review them regularly

Do not leave agreed changes as verbal arrangements. If a change affects the contract, ask a lawyer to prepare an appropriate written amendment and make sure both parties understand and formally agree to it.

Specify whether the terms are temporary or long-term. Also clarify what happens after any extension or grace period: will the standard schedule resume, or will a new obligation apply? Avoid vague promises to “discuss it later” when a specific financial obligation is already involved.

Review your records regularly. If the same request keeps coming up, the standard offering itself may need adjusting. Exceptions should not become a hidden way of masking impractical terms.

Practical takeaway: Before taking on your first franchise partner, prepare written criteria for special terms. Use a consistent assessment process, clear approval procedures and documented reasons to protect trust across your franchise network.