Restaurant Franchise Agreement (Pakistan)

A Restaurant Franchise Agreement in Pakistan records the bargain between the parties, fixing their respective rights, duties and remedies.

Pakistan does not have a dedicated franchise law — franchise agreements are governed by the general law of contract under the Contract Act 1872 (Act No. IX of 1872), which applies to all commercial agreements in Pakistan. The Contract Act 1872 requires that a Restaurant Franchise Agreement satisfy all elements of a valid contract: free consent under Section 14, lawful consideration under Section 2(d), parties competent to contract under Section 11, and a lawful object under Section 23. In the absence of specific franchise legislation, the courts of Pakistan interpret franchise agreements as commercial contracts subject to the general principles of the Contract Act 1872. The Specific Relief Act 1877 governs remedies for breach — a franchisee who has invested in premises fit-out may seek specific performance of the franchise agreement rather than damages alone.

The restaurant franchisee's intellectual property rights — to use the franchisor's trademarks, service marks, trade names, logos, and trade dress — are governed by the Trade Marks Ordinance 2001 administered by the Intellectual Property Organisation of Pakistan (IPO Pakistan). A Restaurant Franchise Agreement in Pakistan must include a licence to use the registered trade marks of the franchisor, and the franchisee must be aware that the licence is non-exclusive and non-transferable unless expressly stated otherwise. IPO Pakistan registers trade marks under the Trade Marks Ordinance 2001, and the Restaurant Franchise Agreement should reference the registered trade mark numbers to enable enforcement against infringers. Where a franchisor's marks are not yet registered in Pakistan, the agreement should include an obligation on the franchisor to file trade mark applications at IPO Pakistan within a specified period — unregistered marks receive weaker protection under Pakistani law.

Restaurant businesses in Pakistan are subject to food safety and hygiene regulations enforced by the Punjab Food Authority (PFA) under the Punjab Food Authority Act 2011, the Sindh Food Authority (SFA) under the Sindh Pure Food Ordinance 1960, the Khyber Pakhtunkhwa Food Safety and Halal Food Authority, and the Pakistan Standards and Quality Control Authority (PSQCA) at the federal level. A Restaurant Franchise Agreement must specify that the franchisee is responsible for obtaining and maintaining all required food business licences, compliance with halal certification requirements under the Pakistan Halal Authority Act 2016 (where applicable), and adherence to the PSQCA food safety standards. PFA inspections in Punjab can result in on-the-spot closures of non-compliant restaurants — a franchise agreement should specify the notification and rectification procedure where a franchised outlet receives a PFA improvement notice or closure order.

Franchisors operating in Pakistan and franchisees who are companies must comply with the Companies Act 2017 administered by the Securities and Exchange Commission of Pakistan (SECP). Corporate franchisees must file annual returns, maintain proper accounts under the Companies Act 2017, and confirm that the franchise fee and royalty payments are properly accounted for. Royalty payments from a Pakistani franchisee to a foreign franchisor require prior approval from the State Bank of Pakistan (SBP) under the Foreign Exchange Regulation Act 1947 (FERA) and SBP's Foreign Exchange Manual. The SBP's Exchange Policy Department processes royalty remittance approvals, and the Restaurant Franchise Agreement should include a clause allocating responsibility between the parties for obtaining and maintaining this approval.

The Income Tax Ordinance 2001, administered by the Federal Board of Revenue (FBR), applies to both franchisors and franchisees. Franchise fees received by a Pakistani franchisor are assessable as business income. Royalties received by a foreign franchisor from a Pakistani franchisee are subject to withholding tax under Section 152 of the Income Tax Ordinance 2001 at the rate specified in the applicable Double Taxation Avoidance Agreement (DTAA) between Pakistan and the franchisor's home country. For franchisees operating as companies under the Companies Act 2017, the franchise fee paid is a capital expense amortisable over the franchise term, while royalties paid are revenue expenses deductible in the tax year in which they are incurred.

A Restaurant Franchise Agreement in Pakistan is required whenever a restaurant brand owner wishes to expand through franchising rather than company-owned outlets, or whenever an entrepreneur seeks to operate a restaurant under an established brand rather than building a new concept from scratch. The agreement formalises the commercial relationship before either party invests capital, protecting the franchisor's brand and the franchisee's investment under the Contract Act 1872.

A Restaurant Franchise Agreement is needed when a Pakistani restaurant brand — whether a fast food chain, a biryani restaurant, a barbecue grill, a dessert brand, or a café concept — decides to expand beyond its company-owned outlets by granting franchise rights to independent operators in other cities or regions. Major Pakistani food brands operating in Lahore, Karachi, and Islamabad typically formalise their franchising through a formal Restaurant Franchise Agreement registered with the SECP (for corporate franchisors) and referencing the Trade Marks Ordinance 2001 for brand protection.

A Restaurant Franchise Agreement is required when an international restaurant franchisor — such as a fast food, casual dining, or quick service restaurant (QSR) chain — grants a master franchise or area development rights to a Pakistani franchisee for operation across Pakistan or a specific province. The agreement must comply with Pakistani law, including SBP foreign exchange approvals for royalty remittances under the Foreign Exchange Regulation Act 1947, and must address DRAP halal requirements where the international brand markets itself as halal in its home market.

A Restaurant Franchise Agreement is needed when a food entrepreneur in Pakistan seeks to acquire franchise rights for an established restaurant concept and wishes to formalise the terms — territory exclusivity, investment requirements, training, and ongoing support — in a binding written agreement before committing capital investment in premises, fit-out, kitchen equipment, and staff recruitment. Without a signed Restaurant Franchise Agreement, the franchisee has no enforceable right to the territory or the brand.

A Restaurant Franchise Agreement is required when a franchisor's existing franchisee wishes to sell or transfer their franchise to a new operator — the original agreement must address whether transfers are permitted (typically requiring franchisor approval under the Contract Act 1872, Section 37), and a new franchise agreement may need to be executed with the incoming franchisee. The SECP's records of the franchisee company must be updated to reflect any change of ownership.

A Restaurant Franchise Agreement is needed for multi-unit development arrangements — where a franchisee commits to developing a specified number of restaurant outlets across a defined territory over a set period, with milestone payment obligations and territory exclusivity conditional on meeting the development schedule. Multi-unit development agreements are increasingly common in Pakistan's growing food service sector, particularly in Lahore, Karachi, Islamabad, Rawalpindi, Faisalabad, and Gujranwala.

A Restaurant Franchise Agreement is required when a food technology platform — a delivery-only cloud kitchen or ghost kitchen operator registered under the Companies Act 2017 — seeks to operate multiple restaurant brands from a single kitchen facility through a franchise model. Ghost kitchen franchise agreements in Pakistan must address the shared kitchen environment, online ordering platform integration, and digital brand management in addition to the standard franchise terms.

A Restaurant Franchise Agreement is needed when a corporate employer in Pakistan wishes to operate a branded restaurant or café franchise within a corporate campus, hospital, or university — a captive franchise arrangement where the franchisee is a corporate entity rather than an independent entrepreneur. Such institutional franchises are common in the medical, education, and financial sectors in Karachi, Lahore, and Islamabad.

A thorough Restaurant Franchise Agreement in Pakistan under the Contract Act 1872 must contain the following essential elements to protect both the franchisor's brand and the franchisee's investment. Forms-legal.com provides this Restaurant Franchise Agreement (Pakistan) template as a starting framework for Pakistani franchise relationships.

Party Details and Recitals: Full legal names, addresses, CNIC numbers (for individuals) or SECP registration numbers (for companies), National Tax Numbers from the Federal Board of Revenue (FBR), and registered office addresses of both the franchisor and franchisee. The recitals should describe the franchisor's restaurant concept, the registered trade marks under the Trade Marks Ordinance 2001 at IPO Pakistan, and the franchisee's desire to operate under the franchise system.

Grant of Franchise Rights: A clear statement of the rights granted to the franchisee — to use the franchisor's trade marks, trade name, operating system, menu, recipes, and brand standards — for the purpose of operating a restaurant at the specified premises or within the defined territory. The agreement must specify whether the grant is exclusive (no other franchisee in the territory) or non-exclusive. The grant clause should identify each registered trade mark by IPO Pakistan registration number to create an unambiguous record of what intellectual property is licensed.

Territorial Rights: The geographic territory in which the franchisee is permitted to operate — specified by city, district, or postal area. Exclusive territorial rights should specify the conditions under which exclusivity may be withdrawn — failure to meet minimum sales targets, breach of quality standards, or failure to open within the development schedule. Punjab districts, Karachi's divisions, and Islamabad Capital Territory boundaries provide standard territorial reference points for Pakistani franchise agreements.

Franchise Fee and Royalties: The upfront franchise fee payable in Pakistani Rupees (PKR) upon execution of the agreement. Ongoing royalties — typically 5% to 8% of gross sales — payable monthly or quarterly. Marketing and advertising fund contributions — typically 1% to 3% of gross sales — payable to a centralised marketing fund. The agreement should specify the calculation basis for royalties (net sales, gross sales, or turnover) and the reporting obligations. For foreign franchisors, the SBP's royalty remittance approval process under the Foreign Exchange Regulation Act 1947 must be addressed.

Term and Renewal: The initial term of the franchise (typically 5 to 10 years) and the conditions for renewal — minimum performance standards, no material breach of agreement, payment of a renewal fee, and execution of the then-current form of franchise agreement. The agreement should specify the notice period for renewal (typically 6 to 12 months before expiry) and the consequences of failure to give timely notice.

Premises and Fit-Out Standards: Requirements for the franchised premises — minimum floor area, location criteria (mall, high street, standalone), fit-out specifications (interior design, equipment, signage), and the fit-out approval process requiring franchisor review and sign-off. The franchisee's obligation to maintain the premises to the franchisor's standards throughout the term. Premises in shopping malls in Lahore (Emporium, Packages, Centrepoint), Karachi (Dolmen, Lucky One), and Islamabad (Centaurus) require separate mall licensing compliance.

Food Safety and Quality Standards: The franchisee's obligation to comply with Punjab Food Authority (PFA) under the Punjab Food Authority Act 2011, Sindh Food Authority (SFA), or relevant provincial food safety regulations, to maintain halal certification under the Pakistan Halal Authority Act 2016 where required by the franchisor's brand standards, and to use only approved suppliers for key ingredients. Non-compliance with PFA standards that results in a closure order is a material breach entitling the franchisor to terminate.

Training Requirements: The initial training program — number of days, location (franchisor's training centre or franchisee's outlet), topics covered, and who must attend (franchisee owner, outlet manager, kitchen supervisor). Ongoing training obligations, including refresher training for new staff and updates on menu changes. The cost allocation for training — whether borne by the franchisor, the franchisee, or shared.

Supply Chain and Approved Suppliers: The franchisor's right to designate approved or exclusive suppliers for key branded ingredients, packaging, uniforms, and equipment. The franchisee's obligation to purchase specified items only from approved suppliers. The basis for approving or adding new suppliers to the approved list and the process for challenging a supplier's inclusion or exclusion.

Intellectual Property and Confidentiality: The franchisee's acknowledgment that all trade marks, recipes, operational manuals, and systems are the franchisor's confidential intellectual property, the franchisee's obligation to use trade marks only as directed under the Trade Marks Ordinance 2001, and the prohibition on disclosure of confidential information to third parties. The Copyright Ordinance 1962 protects the franchisor's operational manuals, menu designs, and marketing materials from unauthorised copying or reproduction.

Termination and Post-Termination Obligations: The grounds for immediate termination (serious breach, insolvency, criminal conviction, food safety closure order) and for termination after notice and cure period (breach capable of remedy, typically 30 days). Post-termination: de-identification of the premises, return of manuals, cessation of use of trade marks, and non-compete obligations in the former territory for a period not exceeding two years — courts in Pakistan will not enforce unreasonably broad non-compete restrictions under Section 27 of the Contract Act 1872.

Dispute Resolution: Arbitration clause under the Arbitration Act 1940 (applicable until the Arbitration Act 2024 is fully operationalised) or the Rules of the Karachi Centre for International Arbitration (KCIA), with the seat of arbitration in Lahore, Karachi, or Islamabad. Alternatively, submission to the civil courts of a specified city under the Code of Civil Procedure 1908, with the jurisdiction of the relevant High Court (Lahore, Sindh, or Islamabad High Court) for appellate matters.