Buying a Franchise in Saudi Arabia: Who Pays for Outlet Upgrades?

The cost of fitting out an outlet may seem clear when you buy a franchise. Later, however, you may be asked to change the furniture, replace equipment that still works well or adopt a new technology system. Across a franchise network, updates to branding and operations help maintain a consistent customer experience, but they can also create financial commitments you have not budgeted for. So do not just ask, ‘How much will I pay to open?’ Also ask, ‘Who can require me to upgrade, at what cost, and when?’

1. Understand the source of the obligation before discussing the price

Franchise agreements carried out 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. Among the matters the agreement must address are provisions relating to changes to the franchise business model. Reviewing the authority to make changes is therefore an essential part of checking the contract, not simply a side discussion about décor.

The franchisor must also provide the franchisee with a disclosure document at least 14 days before the agreement is signed or any franchise-related payment is made, whichever comes first. Use this period to cross-check the upgrade obligations in the disclosure document against the contract and its schedules. Do not assume that the opening cost estimate covers all future expenditure.

Start by identifying which document creates the obligation: the contract, the operations manual or a specifications schedule? If the contract refers to a manual that the franchisor can amend, ask to see the sections with financial implications before signing. Also check which document takes precedence if their terms conflict, and how the franchisee is notified of changes.

The franchisor’s authority to update standards does not, on its own, answer the question of who pays. Ask a lawyer to review the scope and wording of that authority rather than relying on verbal assurances that changes will be limited.

2. Distinguish maintenance from mandatory changes

A phrase such as ‘maintaining the outlet in line with the brand’s latest standards’ may cover very different obligations. Ask for these to be broken down into clear categories: replacing a damaged item is not the same as redesigning an entire outlet.

• Routine maintenance: repairing damage and maintaining cleanliness, safety and equipment performance.
• Replacement at the end of useful life: replacing equipment that is no longer serviceable or economical to repair.
• Brand refreshes: changing colours, signage and furniture, even where the existing items are in good condition.
• Technology upgrades: changing point-of-sale systems, screens, or other operational hardware and software.
• Changes to service delivery: altering the ordering process, layout or production equipment.

For each category, ask who makes the decision, how the need is assessed, when the work must be completed and who pays. Also distinguish between an upgrade the franchisor requests for commercial reasons and a change needed to comply with a relevant authority’s requirements: the contract does not remove applicable legal obligations.

Ask for documented examples of previous upgrades at comparable outlets: what changed, what work was involved, and did operations have to stop? These examples do not guarantee what you will pay in future, but they can help reveal costs beyond the price of furniture or equipment alone.

3. Calculate the cost of implementation, not just the fit-out bill

Create a separate worksheet for each potential upgrade. Include equipment purchases, shipping, installation, removal of old fittings, electrical work, design fees and any permits required for the particular changes. Add staff training and data migration costs where technology systems are being replaced.

Then assess the impact on the outlet. Can the work be completed outside opening hours? Will the upgrade require a full or partial closure? Which expenses, such as rent and wages, will continue during the downtime? When estimating the financial impact, do not equate lost sales with a net loss; ask your accountant to calculate which expenses will stop and which will continue.

Test at least two scenarios: a limited upgrade while the outlet remains open, and a major upgrade requiring a shutdown. The aim is not to predict the franchisor’s decision, but to understand the level of financial commitment you can manage without undermining day-to-day operations.

Pay attention to the remaining contract term, too. Buying equipment with a long useful life may make less financial sense if it is required shortly before the agreement expires. Ask how this situation is handled, and do not assume that a mandatory upgrade automatically entitles you to compensation for its undepreciated value.

4. Turn concerns into contractual safeguards

Rather than asking for a ban on all changes, negotiate a process that allows the outlet to implement upgrades while maintaining brand standards. Suggested points include:

• Written notice explaining the scope, reasons and timing of the upgrade.
• An implementation period proportionate to the work involved, with separate arrangements for urgent cases.
• A clear statement of how costs will be shared, including any contribution from the franchisor.
• A process for approving the budget and dealing with overruns.
• The option to phase the work or use approved alternatives that meet the specifications.
• Provisions addressing major upgrades required towards the end of the contract term.

These are negotiating suggestions, not automatic rights simply because they appear here. Anything the parties agree should be recorded in a binding document, with its relationship to the operations manual and the authority to amend that manual clearly explained.

Also review the consequences of delays: how will the outlet be notified of a breach, what opportunity will it have to remedy it, and how will delays beyond its control be handled? Do not leave these questions until an urgent upgrade demand arrives.

Practical takeaway: Before signing, prepare a table linking each potential upgrade to the authority to require it, its cost, its deadline and its operational impact. If these points remain unresolved, your franchise purchase budget is still incomplete.