ARTICLE
Your operations manual tells franchisees how to run the business. Your franchise agreement decides what happens when things go well, when they go wrong, and when the relationship ends.
Many franchise problems we have seen in 33 years at GMB Franchise Developers did not start with bad products or bad locations. They started with a vague contract: a territory nobody defined, a fee nobody explained, a renewal nobody planned. Sa umpisa, okay lang lahat. Pag may problema na, doon nagkakaalaman.
This list names the clauses to ask about. It is not a template, and it is not legal advice. Every franchise agreement should be drafted or reviewed by a lawyer who knows Philippine franchising.
Why your franchise agreement matters more than you think
A good franchise agreement:
- Protects your brand and trade secrets.
- Sets clear expectations so franchisees know exactly what they are buying and what they must do.
- Prevents disputes, or makes them easier to settle when they happen.
- Makes your franchise easier to sell, because serious investors and their lawyers look for fair, clear terms.
For real examples of what goes wrong without one, read Lessons from Franchise Disputes.
Before you draft: three things to have ready
Your lawyer can only write a good agreement if your business decisions are already made. Prepare these first:
- Your trademark filing or registration with IPOPHL. You cannot license a brand you do not own. See Trademark Basics for Franchisors in the Philippines.
- Your franchise package: franchise fee, royalty, marketing fee, inclusions, term and territory policy.
- Your operations manual, or at least its outline. The agreement will refer to it as the source of your standards.
The 15-clause franchise agreement checklist
Use this as the list of questions for your lawyer, not as wording to copy. For each item, ask: Is it in the agreement? Is it clear? Is it fair to both sides?
1. Parties and definitions
This clause names who is actually bound, and what words such as "Gross Sales," "Territory" and "Manual" mean. Many disputes start because those words were never defined.
2. Grant of franchise
This clause states what the franchisee may do with your brand and system, and what they may not do. A vague grant is how a franchisee opens another branch, or hands your brand to someone else, without you.
3. Territory
Territory says where the franchisee may operate, and whether anyone else may operate there too. An undefined territory is one of the most common fights between a franchisor and a franchisee.
4. Term and renewal
Term is how long the relationship lasts, and renewal is whether it continues. A renewal nobody planned becomes a crisis the month the first term ends.
5. Fees and payment terms
This clause names every fee and how it is paid. A fee nobody explained is the one franchisees later refuse to pay.
6. Site selection and store development
This clause covers who may choose a site and who must approve it before money is spent on the store. A site nobody approved can put your brand in a location that was never going to work.
7. Training and opening support
This clause records the training and opening help you promise, and who pays for it. If it is vague, the franchisee expects support you never priced, or you promise support you cannot sustain.
8. Operations manual and standards
This clause makes your standards binding and keeps the manual your property. Without it, "the standard" is whatever the franchisee remembers from opening week.
Knowing the clauses is the easy part. How each one is worded for your brand is what protects you. GMB Franchise Developers reviews and builds franchise agreements with you, working with your lawyer.
9. Supplies and approved suppliers
This clause says which products must come from you or from suppliers you approve. Hidden rules break trust, and no rules at all let quality drift.
10. Marketing and brand fund
This clause covers the brand fund and what the franchisee may say and spend in your name. Unapproved marketing can put offers on your brand that you would never have made.
11. Intellectual property and confidentiality
This clause keeps your trademarks, recipes, manuals and know-how yours, during the agreement and after it ends. If confidentiality is weak, the system leaves with the franchisee.
12. Reports, records and audits
This clause gives you sales reports and the right to look at the store and the books. Without it, you cannot tell whether the fees are correct or whether the branch still meets your standard.
13. Non-compete
A non-compete limits a similar business while the agreement runs and for a time after it ends. Your lawyer has to judge what a court will enforce, because a clause that is too vague or too extreme can fail on the day you need it.
14. Transfer and sale of the franchise
This clause says whether the franchisee can sell the branch, and what happens if they die or can no longer run it. An unwritten transfer turns a sale, or a death in the family, into a fight over your brand.
15. Default, termination and post-termination
This clause says what a breach is, whether it can be fixed, and how your brand comes off the store when the relationship ends. A missing exit, or no path for a dispute, is how a failed branch keeps using your name.
Philippine legal points to raise with your lawyer
Your lawyer should also check:
- Intellectual Property Code rules. A franchise agreement licenses your trademark and know-how. Your lawyer should check it against the Intellectual Property Code's rules on technology transfer arrangements. Those rules decide which clauses are allowed.
- Trademark license and registration status with IPOPHL.
- Tax treatment of franchise fees and royalties. Ask your accountant about VAT and withholding tax.
- Consumer and fair-trade rules, especially in how you advertise your franchise.
- No income guarantees. A franchise agreement should never read like an investment contract. See Franchise or Investment Scheme? How Franchisors Stay on the Right Side.
Explain the agreement before the franchisee signs
A contract the franchisee did not understand is the one they fight later. Their own lawyer should read it before they sign. We explain why in Why You Should Explain the Franchise Agreement to Your Franchisee Before They Sign.
Frequently asked questions
Is there a specific franchise law in the Philippines?
There is no single law that covers every part of franchising. Franchise agreements are mainly governed by the Civil Code on contracts and by the Intellectual Property Code, together with other business and consumer rules. A lawyer familiar with franchising should review your agreement.
Can I use a franchise agreement template from the internet?
A template from the internet will not fit your brand, your numbers or Philippine law. Knowing the headings is not the same as having an agreement that protects you.
How long should a franchise agreement last?
There is no single length that fits every brand. A term you cannot explain to a franchisee, or to your lawyer, is the one that causes trouble when renewal comes.
Who drafts the franchise agreement, the consultant or the lawyer?
The lawyer drafts and is responsible for the legal document. A franchise consultant helps you make the business decisions behind it (fees, territory, support, standards) and coordinates with your lawyer so the agreement matches your system.
Should the franchisee have their own lawyer?
Yes, we encourage it. A franchisee who understands what they signed makes a better long-term partner.
Get the wording right, not just the list
Knowing the clauses is the easy part. How each one is worded for your brand, your numbers and Philippine law is what protects you, and one weak clause can cost you a branch or your brand. GMB Franchise Developers reviews and builds franchise agreements with you, working with your lawyer. Book a consultation.
GMB Franchise Developers has guided 350+ brands since 1993. If you are comparing advisers, start with How to Choose the Best Franchise Consultant in the Philippines. Book a consultation.