Franchise Agreement (Pakistan)

A Franchise Agreement in Pakistan governs the arrangement between the parties and the conditions on which it operates.

Pakistan does not have a dedicated franchise statute — unlike the United States (Federal Trade Commission Franchise Rule), Australia (Franchising Code of Conduct), or the European Union's block exemption regulations — meaning that franchise relationships are regulated entirely through general contract law under the Contract Act 1872, intellectual property law under the Trade Marks Ordinance 2001 and the Copyright Ordinance 1962, and competition law under the Competition Act 2010 administered by the Competition Commission of Pakistan (CCP). This absence of specific franchise legislation places particular importance on the Franchise Agreement itself as the primary source of the parties' rights and obligations.

The Franchise Agreement in Pakistan must comply with Section 10 of the Contract Act 1872, which requires that all contracts be made by free consent, between competent parties, for a lawful consideration, and with a lawful object. Section 23 of the Contract Act 1872 renders void any agreement whose object is opposed to public policy or unlawful. Franchise arrangements that involve exclusive territorial restrictions, pricing controls, or market allocation must be assessed against the Competition Act 2010, as agreements that appreciably prevent, restrict, or distort competition in the relevant market are prohibited under Section 4 of the Competition Act 2010, and the Competition Commission of Pakistan (CCP) has the authority to issue cease-and-desist orders and impose penalties.

The trademark licence component of a Franchise Agreement is regulated under Section 53 of the Trade Marks Ordinance 2001, which permits the registered owner of a trademark to grant licences — including exclusive and non-exclusive licences — for the use of the mark in relation to specified goods or services. Section 53(3) requires that trademark licences be recorded with the Intellectual Property Organisation of Pakistan (IPO-Pakistan) to be effective against third parties. Unrecorded licences are valid between the parties but cannot be asserted against a third-party infringer or challenger. IPO-Pakistan, established under the Intellectual Property Organization of Pakistan Act 2012, is the government body responsible for trademark registration, copyright administration, and patent granting in Pakistan.

The franchise industry in Pakistan encompasses food and beverage (McDonald's, KFC, Pizza Hut, Subway, and local chains), education (school and tutoring franchises), retail (clothing, cosmetics, and consumer goods), healthcare (diagnostic laboratories and pharmacy chains), and services (logistics, automotive, and cleaning services). The Pakistan Franchise Association (PFA) promotes standard practices and has developed a voluntary Code of Ethics for the industry, though compliance is voluntary in the absence of mandatory franchise disclosure regulations.

A Franchise Agreement in Pakistan is required in all situations where a business owner grants another party the right to operate under their brand and systems.

A Franchise Agreement is needed when an established Pakistani food and beverage brand — such as a restaurant chain, bakery, or juice bar — wishes to expand nationally by granting franchise licences to investors in cities other than the brand's home city. The agreement defines the territory (single city, province, or nationwide), the menu standards, supplier requirements, quality control obligations, and the royalty structure.

A Franchise Agreement is required when a foreign franchisor — a global fast-food chain, a retail brand, or an educational institution — wishes to enter the Pakistani market through a master franchisee arrangement. The master franchise agreement grants the Pakistani master franchisee the right to sub-franchise within Pakistan, with the master franchisee assuming responsibility for the sub-franchisees' compliance with the brand's standards.

A Franchise Agreement is needed when an educational institution — a school, tutoring centre, or vocational training provider — wishes to replicate its model through franchised branches operated by third-party investors. Education sector franchise agreements are common in Pakistan's rapidly growing private education market and must comply with provincial education authority regulations in Punjab (Punjab Private Educational Institutions Regulatory Authority — PEERA), Sindh (Sindh Private Educational Institutions Regulatory Authority — SPEIRA), and other provinces.

A Franchise Agreement is required when a diagnostic laboratory chain, pharmacy network, or other healthcare service provider expands through franchised branches. Healthcare franchise agreements must confirm that all franchised facilities comply with the Pakistan Medical and Dental Council (PMDC) regulations, the Drug Regulatory Authority of Pakistan (DRAP) licensing requirements, and provincial health department standards.

A Franchise Agreement is needed when an existing franchisee wishes to renew, transfer, or assign their franchise to a third party. The original Franchise Agreement typically contains renewal terms, transfer conditions, and the franchisor's right of first refusal on any assignment.

Parties in Pakistan should prepare a Franchise Agreement (Pakistan) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under the Companies Act 2017, the Securities and Exchange Commission of Pakistan (SECP) maintains the register of Pakistani companies. Section 16 of the Companies Act 2017 governs company incorporation. The Contract Act 1872 governs general contractual obligations. The Federal Board of Revenue (FBR) administers corporate tax under the Income Tax Ordinance 2001. The High Courts (Lahore, Sindh, Peshawar, Balochistan, Islamabad) have original and appellate jurisdiction. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A valid Franchise Agreement in Pakistan under the Contract Act 1872 and the Trade Marks Ordinance 2001 must contain the following essential elements.

Party Identification: Full legal names, National Tax Numbers (NTN) from the Federal Board of Revenue (FBR), SECP registration numbers (for companies under the Companies Act 2017), registered addresses, and CNIC or NICOP numbers of the principal authorised signatories. For foreign franchisors, the name of the Pakistan-registered branch or subsidiary (if any) and the relevant SECP registration should be included.

Grant of Franchise: A clear, specific description of the rights granted — the right to use the franchisor's registered trademarks (with IPO-Pakistan registration numbers), trade names, trade dress, operating manuals, and proprietary systems — within the defined territory for the duration of the agreement. The grant should specify whether the franchise is exclusive (no other franchisee in the territory) or non-exclusive, and whether the franchisor retains the right to operate company-owned outlets in the same territory.

Franchise Fee and Royalties: The initial franchise fee payable upon signing, the ongoing royalty rate (typically expressed as a percentage of gross revenue — commonly 5%–8% in Pakistani franchise arrangements), the marketing fund contribution, and the payment schedule. All amounts should be stated in PKR, with a mechanism for adjustment if a foreign currency royalty is payable to a foreign franchisor (subject to SBP foreign exchange approval under FERA 1947).

Operating Standards and Quality Control: The franchisee's obligation to operate the business strictly in accordance with the franchisor's Operations Manual, product specifications, service standards, and brand guidelines. The franchisor's right to conduct inspections, audits, and mystery shopper visits — with minimum notice periods — to verify compliance. Non-compliance remedies, including the right to issue improvement notices, impose financial penalties, and ultimately terminate the franchise for material or repeated non-compliance.

Training and Support: The franchisor's obligations to provide initial training (duration, location, content), pre-opening support, ongoing field support, access to updated operations manuals, and participation in the franchise network's annual conference or regional meetings. Training obligations are particularly important in Pakistani franchise agreements given the varying skill levels of franchisees across different cities and provinces.

Term and Renewal: The initial term of the franchise (commonly five to ten years in Pakistan), the conditions for renewal (satisfactory performance, absence of material breaches, payment of a renewal fee, and execution of the then-current form of Franchise Agreement), and the timeframe within which the franchisee must exercise the renewal option.

Termination and Post-Termination Obligations: Events of default triggering termination (non-payment, breach of quality standards, insolvency, change of control without consent, criminal conviction of the franchisee or key personnel) and the post-termination obligations — de-identification of the premises (removing signage, livery, and branding), return of confidential information and operations manuals, cessation of use of the franchisor's trademarks, and the non-compete covenant (typically two years, within the territory, in the same or similar business).

Dispute Resolution: The choice of governing law (Contract Act 1872 and laws of Pakistan), the seat of arbitration (Lahore, Karachi, or Islamabad under the Arbitration Act 1940 or, for international franchise agreements, under UNCITRAL Rules or ICC Arbitration Rules), and the language of arbitration. Some franchise agreements specify mediation as a mandatory first step before arbitration.

Forms-legal.com provides this Franchise Agreement (Pakistan) template as a thorough starting point for franchise arrangements across multiple sectors. Given the complexity of franchise relationships and the absence of a dedicated franchise statute in Pakistan, both franchisors and franchisees should obtain legal advice from an advocate enrolled at a provincial Bar Council with experience in commercial contracts and intellectual property law before finalising the agreement.