When drafting a franchise agreement, the focus often falls on the obvious key components: fees, brand usage rights, operational manuals, territorial protections, intellectual property, and termination clauses. These are, without doubt, essential pillars of the franchise relationship. However, it is often the overlooked clauses, those tucked into the “Definitions” section—that can have disproportionately large consequences when disputes arise.
One such clause is the definition of a “Business Day.” While it may appear trivial at first glance, this small piece of legal language can have a significant impact on the way payments, obligations, and timelines are interpreted and enforced. In some cases, it can mean the difference between successful franchise execution and costly litigation.
The Role of Time in Franchise Agreements
Franchise agreements are fundamentally time-sensitive instruments. Unlike casual business arrangements, these agreements govern long-term relationships with ongoing, structured obligations that must be fulfilled within specific time frames. In the franchising world, time is not merely a guideline, it is a legal and operational framework. Every timeline in the agreement is there to ensure smooth roll-out, accountability, and uniformity across the franchise system.
Franchisees, upon signing the agreement, are bound by a series of carefully calculated deadlines designed to align their activities with the franchisor’s system-wide expectations. These obligations include but not limited to:
- Paying royalties and marketing contributions on a monthly or quarterly basis to ensure consistent revenue for the franchisor and funding for brand-wide campaigns.
- Completing initial training within a specific number of days or weeks to ensure the franchisee is adequately prepared to operate under the franchisor’s standards.
- Submitting site proposals for new outlets within a fixed period to secure approval before leases or construction begins.
- Opening their outlet or commencing business by a certain date to activate the franchise license and deliver results in line with the development schedule.
- Remedying any breach (e.g., non-payment, operational non-compliance) within a given “cure period” to avoid default or termination.
- Responding to termination, renewal, or non-renewal notices within strict periods set by the agreement or the relevant franchise legislation.
What is important to note is that all of these obligations are typically phrased in terms of “days”, and more precisely, “Business Days.” This language appears straightforward, but unless the term “Business Day” is clearly and unambiguously defined within the agreement, it introduces risk and legal uncertainty.
A Legal Minefield
Malaysia presents a unique legal drafting challenge due to its state-level variation in what constitutes a working day. In most states, the standard working week runs from Monday to Friday, with Saturday and Sunday forming the weekend. However, in states such as Kedah, Kelantan and Terengganu, the weekend occurs on Friday and Saturday, and Sunday is a working day. This difference, though culturally normal in practice, can cause serious legal complications if not explicitly addressed in the agreement.
Imagine a franchisee operating in Terengganu, who makes a payment or sends a notice on a Sunday. To them, it is a valid business transaction made on a normal working day. But if the franchisor is based in Kuala Lumpur, where Sunday is a non-working day, the same action could be deemed late or even invalid. Now, what should have been a routine payment or communication becomes a legal grey area—and possibly the foundation for a breach or termination claim.
Example 1: A Development Timeline Gone Wrong
To illustrate how impactful this issue can be, let’s look at a typical franchise development process. Suppose the agreement requires the franchisee to complete site identification and submit it for approval within 30 Business Days from the date of execution. The franchisee, based in Terengganu, calculates Sunday as a Business Day and submits their documentation on what they believe to be the last permissible day. However, the franchisor, using the calendar in Kuala Lumpur, does not recognize Sunday as a Business Day and determines the submission to be late.
This minor inconsistency creates a domino effect. If the site approval is delayed, then the lease signing, which may be scheduled within 10 Business Days of approval, is also pushed back. The subsequent store opening, which is supposed to happen within 60 Business Days from the lease, also falls behind. Now, a series of carefully timed commercial events have become misaligned due to a simple discrepancy in calendar interpretation. The costs can be significant—construction delays, staff misallocation, missed marketing windows, and even possible penalties for failure to commence operations on time.
Example 2: Termination Due to Misinterpreted Cure Period
The consequences are even more severe when a franchisee is in breach and must take action within a set period to cure the default. Most franchise agreements contain language like:
“If the Franchisee fails to pay royalties when due and does not cure such default within 14 Business Days after written notice, the Franchisor may terminate this Agreement immediately.”
Let’s assume royalties were due on 30 June, and a breach notice was issued on 7 July. The franchisee, based in Terengganu, receives the notice and calculates the 14 Business Days based on a calendar where Sunday is a working day. They remit payment on 22 July, believing they are within the cure period. However, the franchisor, headquartered in Kuala Lumpur, does not count Sundays as Business Days and determines the 14th Business Day to fall on 23 July. They receive the funds one day “late” and, based on this technicality, choose to terminate the agreement.
The franchisee, having invested heavily in the business, disputes the termination and claims they complied with the cure clause. What could have been resolved through simple contract clarity now escalates into a legal dispute. The court must determine whether the payment was made on time, and that hinges entirely on how “Business Day” is defined—if it was defined at all.
A Robust Definition That Protects Both Parties
To avoid such costly confusion, every franchise agreement should contain a precise and comprehensive definition of “Business Day.” In my practice, I typically include language such as:
“Business Day” means a day (other than a Friday, Saturday, Sunday, or public holiday) on which commercial banks are open for business in both Kuala Lumpur (the principal place of business of the Franchisor) and the Territory.
This definition ensures alignment between the financial calendars of both parties. It accounts for regional differences in weekends, ensures compatibility with banking schedules (which govern actual payment processing), and removes ambiguity around notices and operational deadlines.
If the franchise system operates across borders, the definition can be expanded to include:
“… or in both the country of the Franchisor and the country of the Franchisee, unless otherwise agreed in writing.”
Alternatively, the agreement can state:
“In the event of inconsistency between calendars, the Franchisor’s calendar shall prevail.”
Time-Related Clauses Deserve Your Full Attention
It’s not just “Business Day” that needs defining. Terms like “Day,” “Month,” “Year,” and “Notice Period” should all be consistently and clearly defined. This ensures that all deadlines—whether for royalty payments, marketing launches, store openings, or renewals—can be planned and measured without ambiguity.
For franchisors, this creates operational certainty and reduces risk exposure. For franchisees, it ensures fair treatment and reduces the likelihood of unintended breaches. For both parties, it is a safeguard against conflict.
What about the Franchise Act 1998
The Franchise Act 1998 (Act 590) does not contain a specific section that defines or regulates “Business Days,” “Working Days,” or time calculation directly. However, references to timelines, notices, cooling-off periods, breach remedies, and operational milestones do appear throughout the Act, and time sensitivity is implied or explicitly stated in many key provisions.
Here are notable sections where time and deadlines are critical, and where definitions such as “Business Day” in your agreement become practically and legally important:
- Section 18(4) – Cooling-Off Period
“A franchise agreement shall have a cooling-off period, which shall be determined by both contracting parties but shall not be less than seven working days, during which the franchisee has the option to terminate the agreement.”
The Act refers to “working days” but does not define it. Your agreement should define whether this includes Sundays in Terengganu/Kelantan, or aligns with banking days.
- Section 30(1) – Notice of Breach
“A franchisor shall give a written notice about a breach of contract by a franchisee and allow the franchisee time to remedy the breach.”
The Act mandates notice and cure periods but doesn’t specify how many days or how to compute them. Most agreements set 14–30 Business Days. Defining “Business Day” here is crucial to prevent wrongful termination disputes.
- Section 31(2)(b) – Termination for Breach
Termination is allowed where the franchisee “fails to remedy the breach… within the period stated in a written notice… not less than fourteen days.”
Again, “days” is used without clarification. Your agreement should specify if these are calendar days or business days, and how weekends and public holidays are treated, especially across different states or countries.
- Section 32(b) – Non-Renewal Notification Period
(b) the franchisee has not been given a written notice of the franchisor’s intent not to renew the franchise agreement at least six months prior to the expiration date of the franchise agreement.
For international franchisors or when dealing with state-specific holidays, clarity on when notice is deemed received is important — a defined “Business Day” helps here.
- Section 34(1) – Extension of Franchise Term
A franchisee may, at his option, apply for an extension of the franchise term by giving a written notice to the franchisor not less than six months prior to the expiration of the franchise term.
The mode and date of receipt matter here. Whether an application received on a non-Business Day (e.g., Friday in Kelantan) counts may affect renewal rights.
Conclusion
Franchising is a business model built on structure, predictability, and replication. Its success depends on more than just branding and systems—it relies heavily on well-drafted agreements that account for every practical variable. The smallest clause in that agreement can determine whether a business succeeds or collapses under legal pressure.
The definition of “Business Day” is one such clause. It may seem minor, but it holds the power to affect payment deadlines, breach notices, training timelines, store launches, and more. When disputes arise, courts will scrutinize every word—and this one, in particular, can shape the outcome of a case.
If you’re a franchisor, franchisee, legal counsel, or franchise consultant, I encourage you to revisit your agreements. Look closely at how you’ve defined time. If your contracts don’t define “Business Day” precisely—or worse, if they don’t define it at all—you may be exposing your franchise system to unnecessary risk. In legal drafting, the smallest clauses often creates the biggest headache.