Buying a Franchise in Saudi Arabia: Check the Resale Conditions Before You Sign

You may choose a suitable brand and run your outlet successfully, only for your circumstances to change and leave you needing to sell. This is when a clause you may have overlooked at the outset becomes important: the transfer of the franchise. In Saudi Arabia’s franchise market, owning the equipment or finding a buyer willing to pay does not guarantee that the right to operate will transfer. So check how readily you can sell the business before signing the purchase agreement, not when you need to exit.

1. Establish what you can actually sell

Selling a business that operates under a brand is not a single, straightforward transaction. It may involve selling assets and stock, assigning the lease, transferring the franchise agreement or selling shares in the operating company. Each route has its own conditions and approval requirements, and your choice may affect the legal and financial outcome.

Start by asking the franchisor: does the contract allow the agreement to be transferred to a new buyer? Then ask about share sales or a change of control of the company. The contract may treat the arrival of a controlling shareholder as a change requiring approval, even if the company’s name and commercial registration remain unchanged.

Ask your lawyer to prepare a list distinguishing between:

• Assets you own and can transfer to someone else.
• Rights to use the brand and operating model that are governed by the franchise agreement.
• Contracts relating to the premises, equipment and services, and the approvals required from the parties involved.
• Licences that need updating or a separate procedure when the business changes hands.

Do not assume that the franchisor’s approval binds the landlord or lender. Nor should you promise the buyer that customer databases can be transferred without checking the relevant data protection requirements and contractual rights.

2. Understand the role of franchisor approval under Saudi law

Franchise agreements performed within Saudi Arabia are subject to the Commercial Franchise Law, issued by Royal Decree No. M/22 dated 9/2/1441 AH, and its Implementing Regulations. The law addresses the transfer of franchise agreements or franchise businesses, so franchisor approval should not be treated as an administrative detail to sort out later.

The law regulates the circumstances in which a franchisor may object to a transfer or a change in the person controlling the franchisee, taking account of what the parties agree on this matter. Issues it addresses include the proposed transferee’s eligibility, financial capacity, compliance with franchisee selection criteria and commitment to assume the required obligations. You therefore need to read the statutory provisions alongside the contractual clause, rather than relying on a general phrase such as ‘transfer subject to franchisor approval’.

Before buying, request written answers to these questions:

• What criteria must a replacement buyer meet, and can you review them in advance?
• Which documents are needed for an approval application to be considered complete?
• Who receives the application, and how is the date of receipt recorded?
• How is the decision communicated, and what process is available to challenge a refusal or address the reasons for it?

The law also requires the franchisor to provide a disclosure document at least fourteen days before the agreement is signed or any payment relating to the franchise is made, whichever comes first. Use this period to review the transfer conditions with your adviser. This review does not mean you have an unrestricted right to sell to any buyer; it helps you understand the restrictions before committing to them.

3. Test how the conditions affect the business’s appeal to buyers

The contract may allow a sale in theory while its transfer conditions make a deal difficult in practice. Ask whether the buyer will take over the remaining term of your agreement or sign a new one, and which fees and standards will apply. Do not value the business on the assumption that the buyer will automatically receive a fresh operating term.

Also examine any requirement to refurbish the premises or replace equipment on transfer. These requirements may be important for protecting the brand’s identity, but they affect the price a buyer can afford to pay. Establish who will bear the cost, when the work must be carried out, and how its cost and scope will be approved.

Check whether the contract gives the franchisor a right of first refusal to buy the business. Ask how it is exercised, what information must be supplied and how it affects the sale timetable. Such a right does not necessarily prevent a deal, but unclear procedures may put off a serious buyer.

Run through a hypothetical scenario: you find a suitable buyer with only a limited period left on the contract. Can they complete the approval process, secure the premises, carry out the upgrades and still benefit from a commercially viable operating term? If the answers remain verbal, ask for the agreed points to be set out in clear contractual wording.

4. Require a documented release from liabilities

A successful sale is not just about receiving the purchase price. You may remain liable under a personal guarantee, for outstanding amounts or for obligations to the landlord and lender, even after handing over the business. Distinguish between the franchisor’s approval of the buyer and your own release from liability: they are not necessarily covered by the same document.

Before signing the franchise agreement, discuss an exit process that identifies amounts due up to the transfer date, addresses guarantees and allocates responsibility for prepaid orders and customer claims. Ask which obligations continue after a sale, such as confidentiality and non-compete obligations, so your lawyer can assess their scope and impact on you.

When you later sell, make completion conditional on obtaining the required approvals and settling the relevant liabilities, rather than handing over operations on a promise that these matters will be resolved afterwards. Keep a file containing the transfer approval, documents transferring the rights, settlement documents and any written releases you obtain.

The practical takeaway: Before buying a franchise, ask for a written roadmap for selling it: who must approve, what conditions the buyer must meet, what payments are required and which liabilities remain with you. A clear exit route is part of a sound decision to invest.