Multi-Unit Franchising in Saudi Arabia: A Phased Expansion Plan

An investor may ask an established business owner for the right to open several units at once. The offer may look attractive, but it multiplies support commitments and execution risks before the relationship has been tested in practice. In the Saudi franchise market, multi-unit franchising needs a phased development plan, not simply an agreement on the number of outlets. The aim is for each new unit to follow demonstrated readiness, rather than a deadline that pressures both parties into opening before everything is in place.

1. Define the rights before discussing the number of units

Start with a clear question: will the franchisee open and operate the units on their own account, or grant rights to other franchisees? These are not the same arrangement. The right to operate several units does not automatically include the right to sub-franchise, so do not leave this distinction buried in broad wording such as ‘area development’.

Set out in an initial memorandum who will operate the units, the target number of units, their opening sequence, and whether each will require a separate agreement or fall under an overarching contractual arrangement. These choices require legal drafting suited to the model; there is no single statutory template imposed on every case.

Saudi Arabia’s Commercial Franchise Law applies to any franchise agreement implemented within the Kingdom. Article 5 prohibits offering or granting a franchise opportunity until the business has operated under the franchise model for at least one year, by at least two persons or at two different outlets, subject to the conditions set out in that article. An investor’s promise to open multiple units is no substitute for meeting this requirement first.

If the arrangement includes sub-franchising and the franchisor does not itself operate the business in Saudi Arabia, the same article contains specific requirements concerning operations within the Kingdom. These need to be checked before any offer or grant is made.

2. Build a development schedule with clear decision gates

Rather than simply assigning an opening date to each unit, divide the plan into stages: preparing the first unit, getting it operating steadily, then assessing the capacity to open the next. Each stage should have defined deliverables and someone responsible for approving them.

The decision gate for moving on to the next unit could include:

• A qualified manager in place at the existing unit, without moving its core team to cover the new opening.
• A fully prepared new team with clearly defined day-to-day responsibilities.
• Regular operational and financial reporting that makes the first unit’s performance clear.
• Resolution of significant operational issues before they are repeated at another location.
• Sufficient funding for the next unit without compromising the existing unit’s commitments.

Agree in advance how each point will be evidenced: through a report, a document, a site visit or a formal approval record. Avoid relying solely on wording such as ‘to the franchisor’s satisfaction’, which gives the franchisee no clear standard to work towards.

As sites and fit-outs can be delayed, distinguish between target dates and contractually binding deadlines. Also explain how extensions can be requested and who is authorised to approve them, so that scattered correspondence does not turn into conflicting promises.

3. Test the franchisor’s capacity to support simultaneous expansion

An investor may be able to fund several units while the franchisor lacks a large enough team to launch them together. Prepare an internal calendar covering both company-owned and franchisee openings, then allocate training, set-up and follow-up resources across it.

For each opening, record which tasks require your team to attend in person, which can be handled remotely, and which are the franchisee’s responsibility. If the same person is expected to train two teams while reviewing a third site’s readiness, the problem lies in the development plan before execution even begins.

Also carry out a financial assessment of each individual unit before looking at the combined picture. Strong performance at an established unit may conceal difficulties elsewhere, while the first unit may bear shared management costs that are not clearly visible in its accounts. Separate the results so that each location can be assessed, and explain how shared costs are allocated.

These are suggested management tools, not fixed statutory ratios or thresholds. Choose criteria that suit your business and can be verified consistently.

4. Link setbacks to clear remedies and consistent documentation

Discuss potential delays before signing the agreement. What happens if the next unit does not open on time? What if the delay is caused by the franchisor, a site that is not ready, or poor execution by the franchisee? Do not treat these as identical situations.

Ask your legal adviser to set out how a failure to meet obligations will be notified, the remedial plan, rescheduling procedures, and the effect on rights to open units that have not yet been developed. Distinguish between what happens to operating units and what happens to future development rights, without assuming that automatic termination or the removal of rights is permitted outside the provisions of the law and the agreement.

Ensure the development schedule is consistent with the franchise agreement, disclosure document and any annexes. Under Article 7, the disclosure document must be provided at least 14 days before the agreement is entered into or any franchise-related payment is made, whichever comes first. Do not rush to collect a payment to reserve the multi-unit development plan without observing this requirement.

Article 11 requires a written agreement in Arabic, signed by both parties, or a certified Arabic translation if the agreement is drafted in another language. The law also requires the agreement and disclosure document to be registered with the Ministry of Commerce. Guidance from the Franchise Centre states that registration must take place within 90 days of signing.

Practical takeaway: Before granting the right to open several units, prepare a development schedule, verifiable decision gates, a support resource plan and a process for addressing delays. Grant expansion rights on the basis of a clear ability to deliver, not enthusiasm for the number of outlets.