Buying a Franchise in Saudi Arabia: How to Review a Confidentiality Agreement

A franchisor may ask you to sign a confidentiality agreement before sharing details of the opportunity. This is an understandable request to protect business know-how, but the agreement needs reviewing to ensure it does not prevent you from assessing the investment or discussing it with your lawyer, accountant and finance provider. In franchising, a good relationship starts with protecting information while allowing professional due diligence. Here is how to review this commitment before buying a franchise in Saudi Arabia.

Separate information protection from any commitment to buy

Start by asking: what am I committing to when I sign? The purpose should be clear: to use the information to evaluate a specific opportunity and not disclose it to unauthorised recipients. Do not assume the document deals only with confidentiality just because its title says so. It may include exclusive negotiation provisions, restrictions on contacting certain parties, an obligation to make a payment, or limits on carrying on other business activities.

Ask for any additional obligations to be separated from the confidentiality provisions, with their duration, scope and implications clearly explained. A clause preventing you from using the franchisor’s secrets does not necessarily mean agreeing to a ban on considering other brands. Nor should wording about “accessing information” become an acknowledgement that profit forecasts are accurate or that your due diligence is complete.

In Saudi Arabia, the relationship is governed by the Commercial Franchise Law and its Implementing Regulations. Article 7 requires the franchisor to provide the franchisee with a disclosure document at least 14 days before the franchise agreement is signed or any payment relating to the franchise is made, whichever occurs first. A confidentiality agreement does not replace this document or shorten the statutory disclosure period.

Define the protected information and permitted use

An overly broad definition of confidential information could turn every conversation or personal note into an obligation that is difficult to manage. Ask for a definition that sets out the types of information covered, such as recipes, non-public operating procedures, internal financial statements and expansion plans. If it includes oral information, ask how confidential material will be identified and documented.

Review appropriate exceptions with your lawyer, ensuring they are drafted as agreed terms rather than treated as rights that automatically apply to every agreement. Examples include:

• Information that is publicly available without any breach of the agreement on your part.
• Information you can prove you lawfully knew before receiving it.
• Information you lawfully receive from another party who is not obliged to keep it confidential.
• Information you develop independently without using the franchisor’s information.

Then review the permitted purpose: is it limited to “reviewing” the information, or does it include financial analysis, risk assessment and preparing a finance application? Ask for wording that allows the due diligence needed for the purchase. In return, do not use the franchisor’s materials to build a competing business or train a team outside the scope of the authorised evaluation.

Establish a clear route for sharing with advisers and finance providers

You may need a lawyer to review the contract, an accountant to examine costs and a technical adviser to assess the fit-out and equipment. If the agreement prohibits disclosure to any third party without separate consent, due diligence could be held up at every stage. It is better to define the categories of authorised recipients from the outset, on a need-to-know basis and subject to confidentiality obligations.

Ask specifically about the bank or finance provider: permission to share with advisers does not automatically extend to a lender. Agree which documents may be shared, how they should be sent and whether the recipient needs to sign a separate undertaking. Also check whether you can realistically meet any obligation to take responsibility for these recipients’ actions.

Practical test: Imagine your accountant identifies an unclear cost and needs clarification from the franchisor, then the bank asks for a copy of the contract and fit-out estimates. Does the agreement allow these steps straight away, or would you need approvals that could take time? Resolve potential obstacles before signing, not after starting your finance application.

Also ask for a carefully defined exception for disclosure required by law or by an order from a competent authority, with notice to the franchisor where legally permitted. Do not accept wording suggesting that confidentiality prevents you from seeking legal advice or submitting documents to a competent authority when necessary.

Review your remaining obligations if you do not buy the franchise

The end of negotiations does not necessarily end your confidentiality obligations. Establish how long they last and whether different treatment applies to trade secrets that remain confidential. No single duration suits all information. What you need is a clear, proportionate obligation reviewed by your lawyer, not open-ended wording accepted without considering its implications.

Review the procedures for returning or destroying documents as well. Do they cover emails, backups and the accountant’s working papers? Negotiate a limited exception for archive copies that must be retained for legal or professional reasons, with continued protection and no commercial use. Do not promise comprehensive technical deletion that you cannot carry out or verify.

Examine any fixed compensation amount or contractual penalty: what triggers it, how is a breach established, and does it extend to an adviser’s mistake? When you move towards the purchase, compare the initial agreement with the confidentiality clauses in the franchise contract. The Implementing Regulations require the agreement to set out both parties’ obligations relating to information confidentiality and data protection. Ask for clarification of any conflict between the two documents.

The practical takeaway: Do not sign until you know what you are protecting, whom you can share it with, how you can use it for due diligence and which obligations remain if you withdraw from negotiations. Good confidentiality provisions protect know-how without obstructing an informed purchase decision.