Clarifying Sections 32 and 34 of the Malaysian Franchise Act 1998
Many readers find the wording of Sections 32 and 34 confusing, especially because the terms “renew” and “extend” are often used interchangeably. The summary below reproduces the statutory text and explains its practical effect, so Parliament’s intent becomes clearer. Allow me to reproduce both section 32 and 34.
Section 32 – Non‑Renewal of a Franchise Agreement
32. A franchisor commits an offence if he refuses to renew a franchise agreement or extend a franchise term without compensating the franchisee—either by repurchase or by any other means at a mutually agreed price—after taking into account the diminution in the value of the franchised business caused by the expiration of the franchise, where:
(a) the franchisee is barred by the franchise agreement, or by the franchisor’s refusal—at least six months before the expiration date—to waive any term of the agreement that prohibits the franchisee from continuing a similar business under another mark in the same area after expiry; or
(b) the franchisee has not received written notice of the franchisor’s intention not to renew at least six months before the agreement expires.
Section 34 – Extension of a Franchise Term
34. (1) A franchisee may apply to extend the franchise term by giving the franchisor written notice at least six months before the term expires.
(2) Unless the franchisee has breached the existing agreement, the franchisor must grant the extension requested under subsection (1).
(3) The renewed agreement must contain terms that are identical to, or no less favourable than, those in the previous agreement.
How the Two Sections Work Together
- Section 34 confers an affirmative right on a compliant franchisee: if notice is served ≥ 6 months before expiry and no breach exists, the franchisor must extend the franchise on terms at least as favourable as before.
- Section 32 protects the franchisee if the franchisor decides not to renew. Should the franchisor (i) provide less than six months’ notice or (ii) insist on enforcing a post‑term non‑compete, the franchisor must compensate the franchisee for lost goodwill. Failure to do so is a statutory offence.
In short, Section 34 is pro‑active (preserving the relationship), whereas Section 32 is protective (mitigating harm when the relationship ends).
Illustrative Example
Ali operates a “HotChic” fried‑chicken outlet under a five‑year franchise that ends in December 2025. In June 2025 Ali properly gives written notice seeking an extension. He is not in breach.
- Under Section 34(2) the franchisor must grant the extension on similar or better terms.
- Instead, the franchisor refuses and notifies Ali only in September 2025—three months before expiry—and continues to bar him from opening a similar outlet in the same area.
Consequences
- The franchisor breaches Section 34 by refusing the extension.
- The franchisor also violates Section 32 because:
- Notice of non‑renewal was < 6 months before expiry; and
- A post‑term non‑compete is being enforced without compensation.
Ali therefore has grounds to claim damages, and the franchisor is exposed to statutory penalties.
Complementary, Not Overlapping
Section 34 empowers the franchisee to continue the business; Section 32 penalises a franchisor who ends the relationship without adequate warning or compensation. Together, they ensure orderly renewals and protect franchisees from abrupt exits.
Personal Observation
To strengthen the protection of proprietary know‑how, it may be preferable to remove the linkage in Section 32(a) that ties compensation to the franchisor’s refusal to waive the non‑compete. Without that condition, franchisors could more confidently safeguard trade secrets, while compensation would still be triggered if insufficient notice is given.