Franchise Agreement Draft in the UAE
A franchise agreement establishes the legal and commercial relationship between a franchisor and a franchisee. It should explain how the franchisee may use the franchisor’s brand, business model, operational systems, and intellectual property while defining the financial and operational obligations of both parties.
For businesses in the UAE, franchise arrangements can involve substantial investment in premises, staffing, equipment, marketing, and licence fees. The agreement should therefore address not only the right to use the brand but also the practical operation of the franchise and the consequences if the relationship ends.
A franchise agreement should also be assessed against the wider UAE legal framework because there is no single federal statute governing every franchise relationship as a separate contractual category.
Abdulrahman Alshaali Advocates & Legal Consultants assists franchisors, franchisees, investors, and businesses with preparing and reviewing franchise agreements under UAE law.
Franchise Agreements Under UAE Law
Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law provides the general contractual framework relevant to franchise arrangements.
The parties’ rights and obligations must therefore be clearly established through the agreement while remaining consistent with mandatory legal requirements.
A franchise arrangement may also involve intellectual property, company licensing, commercial agency considerations, and sector-specific regulations.
Federal Decree-Law No. 36 of 2021 on Trademarks is particularly relevant where the franchisee is granted the right to use registered trademarks, trade names, logos, or other brand identifiers.
Federal Law No. 3 of 2022 Regulating Commercial Agencies may also require consideration where the structure of the relationship satisfies the statutory requirements governing a commercial agency.
A franchise agreement should not automatically be described or treated as a registered commercial agency merely because the franchisee distributes the franchisor’s products or operates under its brand.
The actual legal structure, activities, parties, registration status, and statutory conditions should be examined separately.
Identifying the Franchise Structure
Before drafting the agreement, the parties should establish the type of franchise relationship they intend to create.
Franchise models can differ substantially.
A franchisee may receive the right to operate a single location, several outlets, or a wider territory.
Other structures may give a party rights to develop or appoint additional franchisees within a specified area.
The agreement should therefore identify matters such as:
- The franchise model.
- The authorised business activity.
- The approved location or territory.
- The number of permitted outlets.
- Whether expansion rights are included.
- Whether sub-franchising is permitted.
- The duration of the franchise.
For example, a restaurant operator granted the right to operate one outlet in Dubai should not automatically assume that the same agreement permits additional branches elsewhere in the UAE.
Expansion rights should be stated expressly and made subject to any agreed conditions.
The structure should also correspond to the licensing and regulatory requirements applicable to the particular business.
Defining the Franchise Territory
Territorial provisions establish where the franchisee may operate.
The agreement should explain whether the territory is exclusive, non-exclusive, or subject to particular limitations.
For example, a franchisee may receive the right to operate within a specific emirate.
The agreement should determine whether the franchisor may establish another outlet within that territory or sell products directly through online channels.
Territorial rights may also be linked to performance requirements.
A franchisor may agree to maintain exclusivity only if the franchisee opens specified locations or achieves agreed commercial targets.
The agreement should identify these conditions clearly.
Where territorial restrictions affect distribution or market competition, their legal implications should also be considered under any applicable legislation.
A general statement that a territory is “exclusive” may be insufficient if the parties have not addressed online sales, delivery services, wholesale customers, and other channels that can operate across geographical boundaries.
Granting the Right to Use the Franchise Brand
The franchisor’s trademarks and brand identity are usually central to the franchise relationship.
Federal Decree-Law No. 36 of 2021 on Trademarks establishes the UAE legal framework for trademark protection.
The franchise agreement should identify the trademarks and brand elements that the franchisee is authorised to use.
It should also define the conditions of use.
For example, the franchisee may be permitted to use the franchisor’s logo on shop signage, advertising, packaging, and approved digital platforms.
The agreement should address whether the franchisee may modify brand materials or create independent marketing content.
It should also establish what happens if a trademark registration changes, expires, or becomes subject to a dispute.
The franchisee’s right to use the brand should generally be distinguished from ownership of the trademark itself.
The agreement should not unintentionally transfer intellectual property rights where the parties intend only to grant limited contractual permission to use them.
Protecting Franchise Systems and Know-How
A franchise relationship often involves more than trademarks.
The franchisor may provide operational manuals, recipes, technical procedures, customer-service systems, supplier information, pricing models, or business methods.
Some of this information may be commercially sensitive.
The agreement should establish how the franchisee may use such materials and who may access them.
For example, an operational manual may be provided solely for managing an authorised franchise location.
The franchisee should not assume that it can reproduce or use the manual for a separate competing business.
Appropriate confidentiality provisions may also be required.
Where highly sensitive information will be disclosed before the principal franchise agreement is executed, a draft nda agreement may provide additional protection during negotiations.
The franchise agreement should also address the treatment of confidential operational materials when the relationship ends.
Initial Franchise Fees and Continuing Payments
Franchise agreements frequently involve several categories of payment.
These may include:
- Initial franchise fees.
- Continuing royalty payments.
- Marketing contributions.
- Training fees.
- Technology or software charges.
- Renewal fees.
- Charges for supplies or equipment.
The agreement should explain what each payment covers and when it becomes payable.
For example, a franchisee may pay an initial fee for access to the system and ongoing royalties calculated as a percentage of revenue.
The agreement should clearly define the revenue figure used for calculating royalties.
Questions may arise concerning refunds, discounts, taxes, delivery charges, or sales conducted through third-party platforms.
If the calculation method is unclear, the parties may later disagree about the amount due.
Where the franchisor has audit rights, the agreement should establish the records the franchisee must maintain and the procedure for examining them.
Establishing Business Setup Responsibilities
Opening a franchise outlet may require substantial work before trading begins.
The agreement should identify which party is responsible for each stage of establishment.
Responsibilities may include:
- Locating suitable premises.
- Obtaining licences and approvals.
- Preparing architectural plans.
- Fitting out the location.
- Purchasing equipment.
- Installing branded signage.
- Recruiting employees.
- Completing initial training.
- Obtaining sector-specific approvals.
For example, the franchisor may approve the proposed location but leave the lease and regulatory approvals to the franchisee.
The agreement should make that distinction clear.
Franchisor approval of a location should not automatically be treated as a guarantee that the premises will obtain every government approval or achieve a particular level of revenue.
The parties should identify their respective responsibilities before the franchisee commits significant funds.
Operational Standards and Franchise Manuals
Consistency is an important feature of many franchise systems.
The franchisor may require the franchisee to follow particular standards concerning store appearance, product preparation, customer service, staff uniforms, technology, or business procedures.
The agreement should explain the contractual status of these requirements.
Operational details may be contained in a separate franchise manual that can be updated over time.
Where this approach is used, the agreement should establish the extent to which the franchisor may update operating standards and how those changes will be communicated.
For example, the franchisor may introduce new packaging requirements across the franchise network.
The parties should consider whether compliance requires substantial additional investment and how such changes will be implemented.
The franchise agreement should provide sufficient flexibility to maintain brand standards without creating unlimited authority to impose unrelated financial obligations.
Approved Suppliers and Product Purchasing
A franchise system may require franchisees to purchase particular products, ingredients, equipment, or branded materials from approved suppliers.
These arrangements can help maintain consistency but may also create commercial dependency.
The agreement should identify the applicable purchasing requirements.
For example, a food franchise may require certain ingredients to be obtained from suppliers approved by the franchisor.
The contract should consider what happens if an approved supplier cannot deliver essential products.
The parties may need a procedure for temporary alternative suppliers.
Pricing arrangements should also be transparent where the franchisor or an affiliated company supplies products directly to the franchisee.
Where the commercial relationship involves continuing product purchases, elements of a Draft Supply Agreement may also be relevant.
The franchise agreement should coordinate these obligations rather than creating conflicting purchasing terms.
Training and Ongoing Support
Franchisees may expect the franchisor to provide training and operational support.
The agreement should specify what assistance is actually included.
Initial support may involve:
- Training the franchisee and key employees.
- Assisting with pre-opening procedures.
- Providing operational manuals.
- Supporting installation of approved systems.
- Advising on the launch of the business.
Ongoing support may include periodic training, operational reviews, product updates, or marketing guidance.
The agreement should distinguish services included in the franchise fees from assistance that requires additional payment.
For example, the franchisor may provide initial training without charge but require the franchisee to cover travel and accommodation expenses.
These financial responsibilities should be established before the programme begins.
The agreement should also avoid describing support in terms that create unrealistic expectations about the commercial success of the franchise.
Franchise Marketing and Advertising
Brand-wide marketing can benefit the franchise network, but disputes may arise when franchisees are required to contribute financially without understanding how funds will be used.
The agreement should explain any required marketing contribution.
It may identify whether payments are made into a central marketing fund or used for specific campaigns.
The franchisee may also be required to undertake local advertising.
For example, the agreement may require the franchisee to spend a minimum amount each year on local marketing while separately contributing to the franchisor’s regional campaigns.
The parties should understand whether the franchisor is required to spend marketing contributions within the franchisee’s specific territory or may use them for wider brand development.
The agreement should also establish approval requirements for locally produced advertising materials.
This helps protect brand consistency while allowing the franchisee to conduct appropriate local promotions.
Performance Targets and Development Obligations
Some franchise agreements require the franchisee to achieve defined commercial or development targets.
These may include opening additional outlets, maintaining minimum purchases, or meeting agreed sales thresholds.
The consequences of failing to satisfy those targets should be stated clearly.
For example, a franchisee may receive exclusive rights for a territory on the condition that three outlets are opened within a specified period.
If the franchisee opens only one outlet, the agreement may allow the franchisor to reduce the territory or remove exclusivity, subject to the agreed terms and applicable law.
Performance provisions should distinguish targets that constitute contractual obligations from forecasts or business objectives.
A sales projection provided during negotiations should not automatically be treated as a contractual guarantee unless the parties clearly intend that result.
The drafting should accurately identify the commitments on which important rights depend.
Protecting the Franchisee from Unclear Expansion Costs
A franchise may require periodic upgrades to maintain current brand standards.
These can include new technology, redesigned premises, updated signage, or replacement equipment.
The agreement should consider how substantial future expenditure will be handled.
For example, a franchisor may introduce an international rebranding programme requiring all outlets to replace their signage and interior design.
The franchisee may face a significant unexpected cost.
The contract should establish the extent of the franchisor’s authority to require upgrades and whether any notice, implementation period, or other agreed conditions apply.
This does not mean that every future cost can be predicted.
However, the agreement can establish a clearer framework for changes that may materially affect the franchisee’s investment.
Renewal of a Franchise Agreement
A franchise agreement is normally granted for a defined term.
The franchisee should not assume that renewal will occur automatically.
The agreement should explain whether renewal is available and what conditions must be satisfied.
Potential conditions may include:
- No material outstanding breaches.
- Payment of applicable renewal fees.
- Completion of required refurbishment.
- Execution of the franchisor’s then-current agreement.
- Completion of additional training.
- Compliance with updated brand standards.
For example, a ten-year franchise agreement may permit renewal for a further term if the franchisee satisfies specified conditions.
The franchisee should understand whether the renewed agreement will continue on identical terms or may involve updated contractual arrangements.
Renewal provisions should be considered before major investments are made near the end of the existing term.
Termination of the Franchise Relationship
Termination can have substantial consequences because the franchisee may have invested heavily in premises, staff, equipment, and brand-specific materials.
The agreement should establish the circumstances in which either party may terminate.
Depending on the arrangement, grounds may include serious contractual breach, non-payment, misuse of trademarks, loss of required licences, or repeated failure to comply with material operating standards.
Some breaches may be capable of correction.
The agreement may therefore provide a notice and remedy procedure where appropriate.
Other circumstances may justify a different contractual response.
The legal effect of a termination clause must be considered alongside applicable UAE law and any special legislation governing the relationship.
Where the arrangement falls within the statutory commercial agency framework, termination and non-renewal may raise additional legal requirements that cannot be assessed solely by reference to ordinary franchise wording.
What Happens After the Franchise Ends?
Post-termination obligations are particularly important in franchise agreements.
The former franchisee may still possess branded materials, confidential manuals, customer-facing signage, and access to technology belonging to the franchise system.
The agreement should establish an orderly exit procedure.
This may include obligations to:
- Stop using the franchisor’s trademarks.
- Remove branded signage.
- Return confidential manuals and materials.
- Disable access to franchise systems.
- Pay outstanding amounts.
- Address remaining branded inventory.
- Transfer or discontinue approved digital accounts where appropriate.
The parties should also consider any continuing confidentiality or legally permissible restrictive obligations.
For example, a former franchisee should not continue presenting an independently operated business as an authorised franchise outlet after the relationship has ended.
A carefully prepared exit process can reduce confusion for customers and protect both parties’ commercial interests.
Could a Franchise Arrangement Be a Commercial Agency?
This question requires particular attention in the UAE.
Federal Law No. 3 of 2022 Regulating Commercial Agencies establishes a specific statutory framework for commercial agencies falling within its scope.
Whether a franchise arrangement is subject to that law depends on the legal structure and whether the statutory requirements for a commercial agency are satisfied.
The assessment may involve the parties’ eligibility, the activities granted to the local party, territorial arrangements, and registration requirements.
A franchise agreement should therefore not simply declare that the Commercial Agencies Law applies or does not apply without examining the actual relationship.
Where the arrangement may fall within the statutory regime, this issue should be addressed before the parties execute the agreement or make substantial investments.
A registered commercial agency can carry legal consequences that differ materially from an ordinary contractual distribution or franchise arrangement.
A Practical Example: Exclusive Franchise Rights Without Clear Development Conditions
Consider an international brand granting a UAE company exclusive franchise rights for a particular territory.
The franchisee believes the exclusivity prevents the franchisor from opening any other outlets in that area.
The franchisor expects the franchisee to open four locations within three years.
The agreement states that the territory is exclusive but does not clearly connect exclusivity to a development timetable.
After two years, the franchisee has opened only one location.
The franchisor wishes to appoint another operator because the market remains underserved.
The franchisee argues that doing so would breach its exclusive territorial rights.
A more carefully prepared agreement could have linked exclusivity to clearly defined development obligations and established the consequences of failing to satisfy them.
For example, failure to open the required locations might result in loss of exclusivity rather than automatic termination of the entire franchise relationship.
The legal outcome of a real dispute would depend on the complete agreement, applicable law, and relevant evidence.
The example illustrates why territorial rights and development commitments should be drafted together rather than treated as unrelated clauses.
Documents Required to Draft a Franchise Agreement
The documents required depend on the franchise model and the business involved.
Relevant materials may include:
- Corporate documents of the franchisor and franchisee.
- Details of registered trademarks.
- Franchise disclosure or commercial information provided during negotiations.
- Operational manuals.
- Proposed territory details.
- Fee and royalty schedules.
- Development plans.
- Approved supplier arrangements.
- Marketing requirements.
- Training programmes.
- Existing master franchise documentation.
- Relevant licences and regulatory approvals.
Where the franchisor owns the intellectual property through a separate group company, the contractual structure should establish how the franchisee receives the necessary rights.
The drafting process should also consider whether separate supply, technology, leasing, or confidentiality agreements interact with the franchise relationship.
Franchise Agreement Drafting Assistance from Abdulrahman Alshaali Advocates & Legal Consultants
A franchise agreement should establish the commercial relationship while addressing the use of intellectual property, financial obligations, operating standards, territorial rights, and the consequences of termination.
Abdulrahman Alshaali Advocates & Legal Consultants assists franchisors, franchisees, entrepreneurs, and investors with preparing and reviewing franchise agreements under UAE law.
Our services may include examining proposed franchise structures, developing intellectual property provisions, reviewing territorial arrangements, assessing payment obligations, and considering the possible application of specialised UAE legislation.
Where the relationship includes wider corporate arrangements between investors, a Draft Investment Agreement or Draft Joint Venture Agreement may also be relevant.
Clients seeking assistance with broader contractual documentation can explore our contract drafting services.
We assist clients in developing agreements appropriate to the legal and commercial structure of their proposed franchise relationship.
Explore Our Contract Drafting Services
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Each agreement should be prepared according to the parties’ intended transaction and the applicable UAE legal framework.
Request Assistance with Your Franchise Agreement Draft
Whether you are expanding an established brand into the UAE, acquiring franchise rights, negotiating territorial exclusivity, or reviewing a proposed franchise before making a significant investment, the agreement should clearly establish the commercial and legal framework of the relationship.
Abdulrahman Alshaali Advocates & Legal Consultants assists clients with preparing and reviewing franchise agreements under UAE law.
Contact our team to discuss your proposed franchise structure and contractual requirements.
Frequently Asked Questions
Does the UAE Have a Specific Franchise Law?
The UAE does not regulate every franchise relationship through a single dedicated federal franchise statute.
Franchise arrangements are instead assessed under the contractual framework and any additional legislation applicable to matters such as trademarks, commercial agencies, licensing, or the relevant business sector.
The exact legal framework therefore depends on the structure of the franchise.
Can a Foreign Franchisor Own the UAE Trademark Used by the Franchisee?
A foreign business may hold trademark rights in the UAE subject to the applicable trademark registration framework.
The franchise agreement should establish the franchisee’s authorised use of the mark without confusing that contractual permission with ownership.
The parties should also verify the relevant UAE trademark registrations before relying on brand rights in the franchise relationship.
Can a Franchisee Sell the Franchise Business to Another Investor?
A proposed sale usually requires consideration of both the ownership of the local business and the franchise agreement.
The agreement may require the franchisor’s approval before franchise rights can be transferred to a new operator.
Separate corporate transfer procedures may also apply.
The franchisee should therefore not assume that selling shares in the operating company automatically transfers every contractual franchise right.
Can the Franchisee Operate Another Business at the Same Time?
The answer depends on the franchise agreement and the nature of the other business.
A franchisor may seek restrictions concerning competing activities, use of confidential information, or management involvement in other businesses.
Any such restrictions should be drafted according to their legitimate purpose and applicable UAE law rather than imposing undefined prohibitions on unrelated commercial activities.
Sources
Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law.
UAE Legislation Platform – Official Legislation
Federal Decree-Law No. 36 of 2021 on Trademarks.
UAE Legislation Platform – Official Legislation
Federal Law No. 3 of 2022 Regulating Commercial Agencies.
