Buying a Franchise in Saudi Arabia: Who Pays for De-branding?

When buying a franchise in Saudi Arabia, it is easy to focus on fitting out and opening the outlet, while overlooking the cost of removing the branding when the relationship ends. Yet this can involve more than taking down a sign: altering the décor, dealing with packaging and stock, closing digital channels and settling outstanding business. In franchising, clarifying these obligations from the outset protects both parties and prevents the end of the agreement from bringing unexpected costs.

Understand when your right to use the brand ends

The relationship is governed by Saudi Arabia’s Commercial Franchise Law and its Implementing Regulations. The law applies to any franchise agreement carried out within the Kingdom. It provides that the assignment of the franchise agreement and franchise business, or the agreement’s termination, expiry or non-renewal, brings to an end the agreement permitting use of the trade mark or trade name associated with the franchise business. The regulations set out the procedures for this.

For a buyer, the practical point is not to assume that owning the outlet’s fixtures or continuing to pay rent gives you the right to keep using the brand after the relationship ends. Nor does holding stock bearing the logo automatically entitle you to sell it under the brand for a period of your own choosing.

The agreement must also set out both parties’ rights and obligations relating to its termination. Ask what will happen to the brand and its associated elements in separate scenarios: expiry of the term, early termination and an exit by mutual agreement. Do not assume that one arrangement will suit them all, or confuse de-branding costs with any compensation that may arise from the grounds for termination.

This review does not determine whether termination is lawful or whether compensation is payable; those questions require a separate assessment of the law, the contract and the facts. Its purpose is to establish what will happen to the premises and their contents if the right to use the brand ends.

List everything carrying the brand before estimating costs

Ask the franchisor for a list of the branded elements that must be removed or changed, then check it against the outlet’s layout and purchasing records. The phrase ‘remove all branding’ may sound clear, but it does not, on its own, define the scope of the work or how completion will be approved.

Divide the inventory into four groups:

• Visible elements: external and internal signs, stickers, product lists, uniforms and display materials.
• Fixed fixtures and fittings: shopfronts, counters, furniture or elements designed specifically for the brand, distinguishing between those that can be altered and those that must be replaced.
• Consumables and stock: packaging, bags, printed materials and stock that carries the brand or cannot be displayed without it.
• Digital channels: the website, accounts, pages, ordering apps and outlet listings on mapping services, depending on who owns them and who has administrative access.

For each item, ask whether it must be removed, covered, destroyed or handed over to the franchisor. Who signs off the result? Do not assume that generic colours or every piece of furniture you own must go; ask for the items covered by the obligation to be identified, along with the basis for requiring changes.

Get an initial estimate from a contractor covering dismantling, transport and making good after removal—not just the cost of the sign. Also record any period during which the premises cannot be used because of the work, treating it as a potential economic cost rather than a fee payable to the franchisor.

Negotiate the practical arrangements and stock treatment, not just general wording

Turn the list into workable contractual arrangements. Ask for clarity on who is responsible for appointing the contractor, paying the costs, obtaining the necessary approvals and documenting completion of the de-branding work. If the franchisor has the right to step in and carry out the removal if you fail to do so, review the conditions for that intervention, how its expenses must be substantiated and how you can challenge them.

Agree the timescale and notice procedure in writing, without treating any negotiated deadline as implied permission to continue using the brand. If the franchisor proposes a transition period, clarify which activities are permitted during it and the limits on using the branding, and check that the arrangement complies with the law.

For stock, seek separate answers to the following questions:

• Is there a mechanism for buying back products or packaging, and in what circumstances does it apply?
• How are acceptable quantities, condition and value determined, and who pays for transport?
• What happens to products that can lawfully be sold once the branding has been removed?
• How will prepaid orders, returns and warranties relating to the outlet’s sales be handled?

Do not assume there is an unconditional obligation to buy back all your assets. With help from a legal adviser, distinguish between statutory rights that apply when their conditions are met, additional benefits you negotiate and matters for which the franchisor has no obligation in the first place.

Set an exit budget and completion criteria before signing

Create a separate de-branding cost sheet listing each item, its estimated cost, the party responsible and the document recording the agreement. Separate confirmed amounts from unresolved ones, and do not treat equipment resale proceeds or stock buyback payments as guaranteed cash without a written basis.

Then test a simple hypothetical scenario: the relationship has ended, but the outlet is still fitted out and has packaging and customer orders on hand. Who contacts customers? Who updates the outlet’s online pages? Who attends the inspection? What evidence will you receive to demonstrate that you have fulfilled your de-branding obligations? Any unanswered question reveals a point that needs to be agreed before you invest.

The practical takeaway: Do not stop at finding out what it costs to install the branding. Before signing, obtain a specific removal list, a clear allocation of costs and a written process for dealing with stock and confirming that the work is complete.