| FFTA |
Proposal |
| Franchisors (i) who do not qualify as a small- and medium-sized enterprise or (ii) whose number of franchises exceeds the threshold number provided in the Presidential Decree must provide a range of anticipated sales revenue in writing when entering into a franchise agreement. |
| Franchisors required to provide a range of anticipated sales revenue: Franchisors with at least 100 franchisees. |
| Anticipated sales revenue: Anticipated sales from a franchised unit, which the prospective franchisee will be operating for a 1-year period from opening, must be stated in terms of a range with minimum and maximum sales figures, where the maximum sales figure must not exceed 130% of the minimum sales figure. |
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| A franchisor may not compel the remodeling of a franchised-unit without just cause. |
| Just cause: If (i) the franchised unit has objectively deteriorated; or (ii) a defect in sanitation or safety substantially interferes with maintaining a uniform brand image or normal business operations. | |
| A franchisor must share the cost of remodeling for the categories designated under the Presidential Decree. The specific amount of cost to be shared shall be determined pursuant to the ratio provided under the Presidential Decree (maximum of 40% of the cost). |
| Cost sharing categories: Cost of remodeling directly related to the brand image or value, such as changing a sign or interior design. |
| Rate of sharing: Franchisor must share 40% of the cost if the remodeling is incidental to relocation or expansion of the franchised unit and 20% of the cost for other remodeling. | |
| A franchisor is required to specify the franchise territory when executing a franchise agreement with a prospective franchisee and must refrain from opening a directly-operated or franchised unit engaging in the same industry as a franchisee within that territory. |
| Exception: Franchise territory may be rearranged if necessitated by a physical change in the territory, change in the purchasing power in the territory, or a change in consumer demand. | |
| A franchisee whose sales from late-night business hours falls significantly lower than the cost of conducting the late-night business for a certain period may request the franchisor to reduce the late-night business operations requirement. |
| Late-night business hours: From 1:00 a.m. through 7:00 a.m. |
| “Certain period”: The previous 6 months | |
| A franchisor may not impose excessive penalties against the franchisee |
Factors in considering excessiveness of a penalty:
(i) purpose and substance of the franchise agreement;
(ii) actual damages suffered;
(iii) whether or not there is a cause attributable to the
franchisee and the degree of fault; and
(iv) customary practice in the relevant industry.
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