Buying a Franchise in Saudi Arabia: Who Is Responsible for Outlet Licences?

You may choose a suitable brand and secure the franchisor’s approval for the design, only to discover that opening the outlet requires approvals you had not factored in. In franchising, a proven business model does not establish that your own business is legally ready to operate. Before buying a franchise in Saudi Arabia, examine one specific question: who obtains the outlet’s licences, who pays for them, and what happens if they cannot be obtained?

Separate franchise rights from permission to operate

Saudi Arabia’s Commercial Franchise Law and its Implementing Regulations govern the relationship between franchisors and franchisees. Among their requirements is the provision of a disclosure document at least fourteen days before the agreement is signed or any franchise-related payment is made, whichever occurs first. The franchise agreement and disclosure document must also be registered with the Ministry of Commerce in accordance with the statutory procedures.

However, registering the agreement does not authorise the outlet to operate. Nor does receiving the right to use the brand and apply its business model replace the licences and approvals required for your intended activities. These requirements vary according to the nature of the business, its location, the services offered and the relevant authorities. There is therefore no single checklist that works for every brand.

Start with an accurate description of what the outlet will actually offer. Do not stop at ‘café’ or ‘service centre’: specify any additional activities, facilities and relevant equipment. Requirements may change if you add food preparation or a specialist service, for example. Ask a qualified licensing adviser to review the description, or check it with the relevant authority, rather than relying on the experience of an outlet that appears similar.

Turn the licence checklist into a responsibility matrix

Ask the franchisor for a list of the approvals required by comparable outlets in Saudi Arabia. Use it as a starting point for verification, not as a guarantee that it covers every requirement. Also ask what changes the franchisor has had to make to its design or equipment to meet local requirements. The answers will indicate how well prepared the brand is to provide practical support.

Create a separate table for each licence or approval, covering:

• The relevant authority and the activity or part of the project covered by the approval.
• The applicant and the name of the business entity to which the licence will be issued.
• The documents required and the party responsible for preparing each one.
• Fees and professional costs, and who will pay them.
• Prerequisites for submission and the process for following up and addressing any issues raised.
• The expiry date and responsibility for renewal once trading begins.

Distinguish between the party preparing the application and the party legally accountable to the relevant authority. Appointing the franchisor or a service provider to handle the application does not automatically transfer your legal responsibility to them. Likewise, allocating costs between the parties in the contract does not, in itself, change either party’s obligations to government authorities.

Test the table with a practical question: if the authority requests a drawing or technical specification that only the brand holds, is the franchisor obliged to provide it within a defined period? ‘We will cooperate when needed’ is less useful than a clear commitment specifying the document, deadline and responsible party.

Review conflicts between brand standards and local requirements

The franchisor may require standardised equipment or an internal layout that needs to be changed to secure local approval. Do not wait until you have bought the equipment to find out how such a conflict will be resolved. Request a written procedure explaining who reviews the authority’s comments, who approves an alternative solution, and who bears the cost of redesign or replacement.

The Commercial Franchise Law requires the agreement to include, among other things, a description of the franchise business and the franchisor’s obligations to provide technical expertise and other assistance required by the nature of the franchise. Use this review to establish whether help with licensing applications falls within the agreed support or is an additional paid service. Do not assume that technical support automatically includes obtaining every approval.

For example, if a food business needs a technical modification to its ventilation, distinguish between the cost of meeting the authority’s requirement and the cost of preserving the brand’s approved design. Obtain a written quotation and approval for the solution before carrying out the work. The aim is not to assume that either party is at fault, but to prevent the project from being caught between two requirements with no mechanism for reconciling them.

Your budget should include the costs of preparing drawings, consultancy, inspections or tests, and any modifications required for the activity—not just government fees. Use actual quotations wherever possible, and do not treat the franchisor’s estimate as a guaranteed final cost.

Agree in advance on the consequences of delay or refusal

Before signing, ask a Saudi lawyer with relevant expertise to review how the contract addresses three separate situations: a delay despite a complete application, refusal for a reason that can be remedied, and an inability to obtain a licence for the intended activity. Each has different consequences. A general statement such as ‘licensing is the franchisee’s responsibility’ is not enough to address them all.

Discuss which document will establish the reason for the setback, the time allowed to remedy it, the cooperation required from the franchisor, and what happens to fees already paid and purchases you have committed to. If you agree to suspend certain financial obligations until a particular approval is issued, specify the approval and how its issuance will be evidenced. These are negotiated arrangements, not automatic rights arising simply because a licence is delayed.

Do not rely on a verbal promise that ‘the licences are guaranteed’, or assume that the franchisor’s approval permits you to start trading without the necessary authorisations. Keep correspondence, applications and official comments in one file, and update the responsibility matrix whenever anything changes.

The practical takeaway: before buying the franchise, prepare a verified licensing checklist, a clear allocation of responsibilities and costs, and contractual provisions addressing licensing setbacks. A brand’s suitability for investment does not, on its own, mean your outlet is authorised to operate.