All questions

Franchise law

i Legislation

There is no separate jurisprudence or regime that relates specifically and solely to the context of franchising. The general laws of Singapore apply equally to franchise-related issues in Singapore.

The FLA, Singapore's national franchise association, has provided a Code of Ethics for franchising, binding only on FLA's members, and which contains provisions on disclosure requirements, contracts regarding existing franchisees, proper selection of franchisees, provision of proper training and business guidance, standards of conduct, notice of breach, rights of termination and dispute resolution, among others.

Additionally, the general laws of Singapore apply to all franchisors and franchisees, regardless of whether they are members of the FLA, and may affect the enforceability of any franchise agreement.

Unfair Contract Terms Act

If any contractual terms are considered unfair under the Unfair Contract Terms Act, they will not be enforceable. Contractual terms are considered unfair if they exclude or restrict liability of any person for death or personal injury resulting from negligence. In the event of other losses or damage, it is also considered unfair if the contractual term provides for an unreasonable exclusion or restriction of liability for such loss or damage.

Misrepresentation under the common law

A franchise agreement may be rendered void on the grounds of misrepresentation under the common law; however, any false statement (whether innocently or fraudulently made) does not, by itself, give rise to a cause of action. It is an actionable misrepresentation only where the false statement has induced the other party to enter into the contract.

ii Pre-contractual disclosure

There are no pre-contractual disclosure regulations relating specifically to the context of franchising.

Apart from the common law rules against misrepresentation described above, which apply equally to franchise-related deals, the FLA's Code of Ethics also prescribes certain rules relating to pre-contractual disclosure.

For example, under the Code of Ethics, FLA's members are prohibited from offering, selling or promoting the sale of any franchise, product or service by means of any explicit or implied representation that has a tendency to deceive or mislead prospective purchasers of such a franchise, product or service.

The Code of Ethics also requires the investment requirements of a franchise to be set out in a detailed and specific manner to avoid being misleading. Additionally, the franchisor is required under the Code of Ethics to disclose to the franchisee at least seven days prior to the execution of the franchise agreement its current operations, the investment required, performance records and any other information reasonably required by the franchisee that is material to the franchise relationship.

iii RegistrationFranchises and franchise agreements

There are no requirements in Singapore for franchises or franchise agreements to be registered. However, companies may choose to become registered members of the FLA, in which case they will be required to abide by the FLA's Code of Ethics.

Trademarks used in the franchise

Although there is no mandatory requirement to register any trademarks used in the franchise, it is advisable for the franchisor to do so. The various advantages of obtaining trademark registration have already been discussed (see Section II.ii). More specifically, the trademarks embody the brand in the franchise system, and go a long way in creating the value of the system. Trademarks therefore form one of the key assets of any franchise system and as such would be closely scrutinised by the potential franchisees of the system.

Trademark licences

It is not compulsory for trademark licences to be recorded. However, it may be advantageous for franchisees or licensees to register a trademark licence with IPOS. Such a registration serves as prima facie evidence of the grant of the licence. Additionally, a record of the trademark licence serves to put third parties on notice of the existence of the licence and the licensee's interest in the licensed mark. The Trade Marks Act provides for a presumption such that once a trademark licence is entered in the register, every person is deemed to have notice of it (including 'equity's darling' – the bona fide purchaser without actual notice). This presumption therefore goes a long way towards protecting a franchisee who has registered its licence.

iv Mandatory clauses

Under general Singapore laws, there is no requirement for mandatory clauses to be included in franchise agreements, and parties are free to negotiate the terms of the deal.

The FLA's Code of Ethics, binding only on members of the FLA, contains certain requirements relating to the clauses in the franchise agreement. For example, a franchise agreement may be terminated only if there is a good cause, which includes the failure of a franchise to comply with any lawful requirements of the franchise agreement.

v Guarantees and protection

Guarantees from individuals and companies to the franchisor are generally enforceable. Under such a guarantee, the guarantor's liability is defined as having to procure that the franchisee performs its obligations, as well as having to perform him or herself if the franchisee fails to do so; however, it is not common practice for local franchisors to require a guarantee, except for in exceptional cases where the franchisor may have reservations about the franchisee's finances or ability to operate the franchise.