On 30th of October 2019, Trade Competition Commission announced the Notification regarding the Guidelines for the Consideration of Unfair Trade Practices in Franchise Businesses (“Franchise Guidelines”), which provides essential guidelines for franchise operators and prohibits unfair or deceptive trade practice in a franchise business.
The regulation mainly focuses on three matters which include the discloser of material information, franchisee’s priority right, and unfair trade practice. H&P lawyers in Bangkok have revised and prepared a brief summary of the essential aspects of this regulation of Franchise in Thailand
Discloser of Material Information
To prevent economic losses arising from misrepresentation or omissions of material facts about the proposed franchise, the regulation requires the franchisor to provide a prospective franchisee with material information regarding the franchised business.
In H&P lawyers’ opinion, this rule allows the franchisee to weigh the risks and benefits of purchasing a franchise before entering into a franchise agreement. Below are lists of information in which the franchisor must disclose prior to a franchise sale:
-Estimated Initial Investment such as entry fee, royalties fee, cost of equipment, marketing, training, advertising. The franchisor must also provide detail of making the payment, the formula used to compute the fee, and conditions to refund the fee if appliable. Those are, however, only the example under the regulations. To avoid any problem from the unclear information, the franchisor should itemize and identify any other specific required payments, both the upfront and ongoing expenses necessary for the franchisee to commence and operate the business.
-Business Plan such as assistance to operate the business, training program, marketing plan, and the number of franchise outlets which is located or maybe located nearly to the prospective franchisee’s exclusive territory.
-Intellectual Property Rights such as the terms, conditions, and limitations of the franchisee to use franchisor’s IP rights.
-Specific Conditions of Franchise Agreement including the renewal, amendment, and termination of the franchise agreement.
Franchisee’s Priority Rights
On 11th of August 2020, the Commission has announced a new amendment of the Franchise Guidelines, to revise article 4 which limits the franchisor’s ability to expand franchise business into the specific territory.
Under the amended regulation, if the franchisor wants to open a franchise outlet in an area near the franchisee’s exclusive territory, regardless of whether the franchisor will operate that outlet by itself, another franchisee, or by any third party. The franchisor must give that franchisee a prior option to open such a new outlet, except the gross sale of the franchisee does not reach the minimum amount which has been previously set. In case the franchisee is entitled to those rights, the franchisor must give the franchisee at least 30 days to notify the franchisee’s acceptance.
Unfair trade practice
The Franchise Guidelines provide a scope of franchisor actions that may constitute unfair trade practice under section 57 of the Trade Competition Act B.E. 2560 (2017). For Example, forcing franchisee to purchase unnecessary products or services from the franchisor or designated supplier; unreasonable restricting franchisee from purchasing supplies from another supplier which have the equivalent quality, but cheaper. The violation of section 57 can result in an administrative fine with a maximum of 10% of turnover in the year of violation.
If you have a franchise project in Thailand and you need to receive advice of a Bangkok lawyer, please contact H&P at [email protected]
