Franchising has exploded in Pakistan — from food chains to tuition centres to retail brands. But signing a franchise agreement without understanding its clauses can leave a franchisee locked into unfair royalties, restrictive territories, or one-sided termination terms.

⚖️ The Legal Framework

Pakistan has no standalone franchise law. Franchise agreements are governed by general principles of the Contract Act, 1872, alongside intellectual property protections under the Trade Marks Ordinance, 2001 where the franchisor’s brand and logo are licensed to the franchisee.

🚩 Key Clauses Every Franchisee Must Review

1. Territory & Exclusivity: Does the agreement grant an exclusive area, or can the franchisor open a competing branch nearby?
2. Royalty & Fee Structure: Upfront franchise fee, ongoing royalty percentage, and marketing fund contributions must be clearly defined.
3. IP Licensing: The right to use the franchisor’s trademark, logo, and operating manuals — and what happens to this right on termination.
4. Term & Renewal: Duration of the agreement and conditions under which it renews or lapses.
5. Termination Clause: Grounds on which either party can exit, and notice periods required.
6. Non-Compete Clause: Restrictions on the franchisee operating a similar business after termination — must be reasonable in time and geography to be enforceable.

✅ Practical example: If a franchise agreement is silent on territorial exclusivity, the franchisor can legally open a second branch two streets away from the franchisee’s outlet — always negotiate this clause explicitly in writing.

📋 Due Diligence Before Signing

• Verify the franchisor’s trademark is actually registered with the IPO Pakistan.
• Request financial disclosure — past franchisee performance, if available.
• Have a lawyer review the termination and non-compete clauses before signing.
• Confirm whether disputes are to be resolved through arbitration or court litigation, and where.

⚡ What Happens if the Franchisor Breaches the Agreement?

A franchisee can seek damages or specific performance through a civil suit under the Specific Relief Act, 1877, or invoke the dispute resolution clause (often arbitration) if one exists in the agreement.

💡 Practical Tips

• Never sign a franchise agreement without a lawyer reviewing the termination and IP clauses.
• Negotiate a defined exclusive territory in writing — do not rely on verbal assurances.
• Keep copies of all franchisor-provided operating manuals; they often form part of the contractual obligations.
• Check the reasonableness of the non-compete period — Pakistani courts generally strike down excessively long or broad restrictions.

Need Legal Assistance?

HSJ Legal, led by Advocate Hina Saleem Jessani, High Court Advocate in Karachi, reviews and drafts franchise agreements for both franchisors and franchisees. Contact us at https://hsjlegal.co/contact/.