Buying a Franchise in Saudi Arabia: How to Assess Territorial Exclusivity

You may choose a suitable brand and a promising location, only to discover that another outlet under the same brand is targeting the same customers. Before buying a franchise in Saudi Arabia, check what territorial exclusivity actually protects, and what remains open to the franchisor or other franchisees. In franchising, clear boundaries and sales channels help reduce disputes and assess an opportunity’s value without relying on a verbal promise that the area is ‘reserved for you’.

1. Understand the difference between territory and exclusivity

The geographical territory defines where you may operate the franchise, while exclusivity defines the restrictions on others carrying out similar business activities within that territory. Naming a city in the agreement is no substitute for reading the provisions that allow the franchisor to operate there, grant rights to others or sell through particular channels.

The relationship in Saudi Arabia is governed by the Commercial Franchise Law and its Implementing Regulations. Article 11 of the Law requires the franchise agreement to specify its geographical scope. Unless otherwise agreed in writing with the franchisee, the franchisor must also refrain, during the term of the agreement, from establishing a business carrying out activities similar to those of the franchisee within the geographical area specified in the agreement, or granting a third party the right to do so.

Do not, therefore, assume that protection is absolute or that an exception is merely an administrative detail. Ask a legal adviser to review any wording that modifies this obligation, particularly if it is spread across the agreement and its schedules. Ask yourself: does the amount you are being asked to pay reflect meaningful protection, or simply the right to operate an outlet at a specified location?

2. Turn the territorial description into verifiable boundaries

Phrases such as ‘the north of the city’ or ‘the area around the shopping centre’ leave room for different interpretations. Request a signed territorial schedule showing the boundaries on a map, with coordinates or clearly identified streets and landmarks. It should also specify which takes precedence if the map conflicts with the written description.

Go through these questions with the franchisor before approving the schedule:

• Does the protection cover the whole neighbourhood or only the property itself?
• Are distances measured in a straight line or along roads?
• Are shopping centres and transport hubs included within the boundaries?
• Are there existing outlets or rights already granted to other parties within the territory?
• Will the territory remain unchanged if neighbourhood names or administrative boundaries change?

Request a written statement of existing outlets, approved locations and previously granted rights that may overlap with your territory, and agree how each will be handled. An exempt outlet does not necessarily make the opportunity unsuitable, but it changes your estimate of the customer base you can reach.

Do not rely solely on the map in the marketing presentation. Make the final map an explicit part of the agreement and ensure that it matches the descriptions in the other documents.

3. Test exclusivity against delivery and digital sales

The agreement may prohibit a new outlet from opening nearby but allow an outlet outside the territory to deliver orders into it. The brand’s website may also take orders from your customers without giving you a role in fulfilling them or a share of the revenue. These matters require clear agreement, rather than an assumption that location-based exclusivity covers every sale.

Ask for a list of the sales channels relevant to the business: outlets, the app, the online shop, delivery platforms, delivery-only kitchens, pop-up kiosks and corporate contracts. For each channel, record who may sell within the territory, who fulfils the order and how revenue is allocated.

For example, consider a customer who lives within your territory and orders through the brand’s app. Is the order automatically routed to your outlet, to the nearest outlet or to one chosen by the customer? What happens if your outlet is closed or unable to fulfil the order?

The aim is not to claim every purchase, but to remove ambiguity that affects your revenue. Any revenue-sharing arrangement or priority in order allocation should be documented, rather than treated as a guaranteed right without an express provision.

4. Review the conditions for retaining protection and any exceptions

The offer may make continued exclusivity conditional on meeting specified sales targets or operational performance indicators. If so, examine how performance is measured, the assessment period, the data source and who decides whether the condition has been met. Distinguish between losing exclusivity and losing the right to operate the outlet: their commercial consequences are different.

Seek to negotiate written notice and a reasonable period to remedy any shortfall before protection is reduced. Also negotiate how circumstances beyond your control will be addressed, such as a disruption to essential supplies or an outage affecting the franchisor’s ordering channel. These are suggested contractual arrangements, not rights that arise automatically simply because you request them.

Watch out, too, for broad exceptions such as ‘strategic locations’ or ‘future channels’. Ask for these to be defined and limited as far as possible, and clarify whether the franchisor may add exceptions later. If it can reduce the territory, review the conditions and the financial and operational implications before accepting the price.

5. Assess the value of exclusivity before committing

Prepare financial projections for two scenarios: the agreed protection remains in place, and competition enters through the permitted exceptions. Test how some orders shifting to another outlet or a central sales channel would affect your business’s ability to meet its obligations. Do not treat an assumed percentage as a fact; record your assumptions and discuss them with your financial adviser.

Make use of the statutory disclosure period. You must receive the disclosure document at least 14 days before signing the agreement or paying any amount in connection with the franchise, whichever comes first. During that period, compare the marketing promises with the agreement and territorial schedule, and request a written explanation of any inconsistencies.

The practical takeaway: Do not pay for an ‘exclusive territory’ until you can identify its boundaries, exceptions, covered sales channels and the conditions under which protection can be lost. Put the answers into clear contractual wording, then assess the opportunity on that basis.