Buying a Franchise in Saudi Arabia: Can You Sell the Outlet Later?

You may choose the right brand and build a successful outlet, only to need to sell it later because you are relocating, bringing in a partner or changing your investment plans. But owning the equipment and the company does not automatically give you the freedom to transfer the franchise agreement to a new buyer. The ability to sell a franchised outlet deserves scrutiny early on: it affects both your future options and the price a buyer may be willing to pay.

Distinguish between an asset sale, assignment and a change of control

Start by establishing what you can actually sell. Selling the outlet’s furniture and equipment does not necessarily transfer the right to use the brand or operate its business model. You might sell shares in the franchisee company, leaving the company itself as a party to the agreement but changing who controls it. Assignment, by contrast, means transferring the contractual relationship to another party under the agreement’s terms and procedures.

These distinctions matter in Saudi Arabia. The Commercial Franchise Law requires the franchisor’s consent before a change in the person controlling the franchisee or an assignment of the agreement, unless the franchise agreement provides otherwise. It also requires the agreement to address the consequences of a change in ownership of the franchisee, the franchisor or the person controlling either of them.

Ask your solicitor to identify which transactions the clause covers: selling shares, bringing in a partner, transferring the agreement to a company you own, or selling the business to an independent investor. Do not assume that transfers within a family or between related companies are exempt simply because the outlet’s manager remains the same.

Turn the franchisor’s consent into a clear process

A statement that ‘a sale is permitted with the franchisor’s consent’ is not enough to assess how easily you can exit your investment. Ask for a written explanation of the approval process, the information required about the buyer, and who is authorised to make the decision. The aim is not to remove the franchisor’s right to assess a new operator, but to reduce uncertainty that could hold up a serious transaction.

Discuss including practical provisions covering:

• Buyer approval criteria, such as experience, financial capacity and willingness to manage the business.
• A list of the documents needed for an approval application to be considered complete.
• A defined review period and a process for requesting additional information.
• How the decision will be communicated, reasons for refusal, and a process for addressing concerns.
• How long approval remains valid if completion of the sale is delayed.

These are suggested negotiating points, not assumed statutory deadlines or requirements. If the contract gives the franchisor a right of first refusal to buy the outlet, examine when it can exercise that right and how it must match the buyer’s offer. Avoid arrangements that allow the sale to be put on hold indefinitely or leave the definition of an acceptable offer unclear.

Calculate the net proceeds, not just the headline price

You may agree a good price with a buyer, only to discover that the transfer terms reduce what you will actually receive. Separate the price of the assets, the value of stock and the amount attributable to the business as a going concern, then draw up a separate list of the sums payable to complete the transaction.

Ask specifically: are there assignment fees or buyer assessment fees? Who pays to train the buyer’s team? Does the franchisor require all outstanding sums to be paid before granting approval? Will it require the outlet to be refurbished or upgraded on transfer? Do not assume any cost is automatically payable: check its contractual basis, how it is calculated and who must pay it.

Also establish whether the buyer will take over the remaining term of your agreement or sign a new agreement with different financial terms. This distinction could change the buyer’s valuation of the outlet even if its operating performance remains unchanged. Ask for written clarification rather than relying on a promise that ‘the terms will be the same’.

Prepare a spreadsheet starting with the expected sale price, then deduct transfer costs, the cost of settling liabilities, advisers’ fees and any tax costs arising from the transaction. Review the tax treatment with a specialist: an asset sale and a share sale are not the same arrangement.

Make completion conditional on approvals and documentation

When the time comes to sell, operational control should not pass to the buyer before the necessary arrangements are in place. Discuss with your adviser making completion conditional on the franchisor’s approval, finalising the assignment documents or new agreement, and addressing the premises lease and licences as appropriate for the transaction.

The Commercial Franchise Law requires the disclosure document to be provided at least fourteen days before the franchise agreement is signed or any payment relating to the franchise is made, whichever occurs first. If the transaction involves granting the buyer a new agreement, plan the timetable to accommodate this obligation. For the specific form of transfer you are considering, seek an assessment of the legal requirements rather than assuming all types of sale are treated alike.

The Implementing Regulations also require the franchisor to register an amendment to the agreement, such as a change of parties, within ninety days of the amendment. Establish who will follow up on this step and ask for evidence that it has been completed. Do not confuse registration with the franchisor’s approval of the transaction.

Do not leave with unresolved liabilities

The franchisor’s approval of the buyer does not necessarily release you from every past or future obligation. Ask for a document setting out when your liability ends, how outstanding amounts will be settled, and what happens to any guarantees you have provided.

Also document the handover of stock, equipment and records, and identify who is responsible for orders and payments around the transfer date. If any obligations will remain with you after the sale, make sure their scope and duration are clear and can be assessed before you accept the final price.

The practical takeaway: Before buying a franchise, ask for a written process for selling the outlet that covers approval, costs, buyer requirements and your release from liability. Transferability does not promise a high resale price, but it helps you understand what you can sell and which obligations will remain afterwards.