The UAE has witnessed a rising number of franchise models over the last years. In particular, numerous international and national brands are recognizing the significance of the model and expanding their business to the UAE and other GCC Countries. But also small and mid-size companies are exploring franchise opportunities in Dubai and the UAE.
2. What is Franchise
Franchising is when a business realizes that its products or services and brand have created value that other investors want to replicate its proven concept. In order to benefit from its brand reputation and achieve scalability, the business owner becomes a franchisor. In the franchise model, the franchisor sells the rights to benefit from its business model in a particular territory to a Franchisee.
3. Legal Framework
In the UAE there is no uniform franchise law. Instead, the UAE Civil Transaction Law and the Commercial Transaction Law govern the franchise agreements. Moreover, there is some uncertainty as to whether franchise models are governed by the UAE Commercial Agencies Law (“Agencies Law”).
A Franchise Agreement will only be governed by the UAE Commercial Agencies Law, if the Franchise Agreement is registered with the UAE Federal Ministry of Economy (“Ministry of Economy”). A Franchise Agreement, however, is only eligible to be registered with the UAE Federal Ministry of Economy if it meets the following requirements:
- The Franchisee must be a UAE national or a company wholly owned by UAE nationals;
- The Franchise Agreement must grant exclusivity over all or parts of the UAE; and
- The Franchise Agreement must be notarized.
In practice, however, most Franchisees are not UAE nationals nor companies entirely owned by UAE nationals. Such Franchise Agreements are per se not eligible to be registered with the Ministry of Economy. If, however, the Franchisee is a UAE national or a legal entity entirely owned by UAE nationals, it is, generally speaking, eligible to get registered with the Ministry of Economy.
If the Franchise Agreement is registered with the Ministry of Economy, the Franchisee may enjoy – inter alia – the following rights and privileges:
- As long as the Franchisee is registered with the Ministry of Economy, the Franchisee may block parallel imports by instructing the UAE ports and custom authorities to prohibit any goods covered by the registered Franchise Agreement to enter the UAE.
- The Franchise Agreement is difficult to terminate by the Franchisor, who needs to have a “justifiable cause.” As such, termination clauses have to be drafted cautiously.
- The UAE Courts have exclusive jurisdiction, i.e. registered Franchise Agreements and other registered agency agreements are not arbitratable.