Buying a Franchise in the UAE: Securing Renewal Rights and Financial Terms

When buying a franchise in the UAE, you may plan to run the business for longer than the initial contract term. But the word ‘renewable’ alone does not guarantee that the relationship will continue, nor does it fix future fees or obligations. Clear renewal terms help both parties plan for long-term investment. Start by checking whether you have an enforceable right to renew or merely an opportunity to negotiate a new agreement.

Distinguish a renewal right from a promise to negotiate

Read the renewal clause separately from the sales pitch. There is a practical difference between renewal that the franchisor must grant if specified conditions are met, renewal at the franchisor’s sole discretion, and renewal that requires you to sign a new agreement whose terms are not yet clear. Ask the franchisor to confirm in writing which arrangement it is offering. Do not rely on verbal assurances that franchisees usually renew without difficulty.

The model restaurant franchise agreement published by the Ministry of Economy and Tourism illustrates why this distinction matters. It provides for renewal on the terms the franchisor normally offers for new agreements at the time of renewal, or on terms negotiated by both parties in good faith if no customary terms exist. This is model wording, not a legal rule binding all franchise agreements, but it shows that renewal may not mean continuing the current contract unchanged.

Ask for clear answers to three questions: How many times can you renew? How long is each renewal term? Can the franchisor refuse renewal even if you meet the conditions? If the answer to the last question is yes, do not treat the additional term as a guaranteed period for recovering your investment when assessing the purchase.

Establish the legal framework without assuming automatic protection

The UAE has no standalone federal law governing all franchise agreements, nor a general franchise-specific disclosure regime requiring a standardised document before signing. Depending on its nature, the relationship is subject to the general contract rules in the Civil Transactions Law, the provisions of the Commercial Transactions Law issued under Federal Decree-Law No. 50 of 2022, intellectual property legislation and other relevant rules. This makes the wording of your renewal rights particularly important.

Federal Law No. 3 of 2022 Regulating Commercial Agencies may apply if the relationship meets its requirements and is registered as a commercial agency. Do not assume that it applies simply because the agreement is called a ‘franchise’, or that you automatically receive the rights of a registered commercial agent.

For a commercial agency governed by that law, a party that does not wish to renew must notify the other party one year before the contract expires, or by a notice period equal to half the contract term, whichever is shorter, unless the parties agree otherwise. This is not a general notice period for every unregistered franchise agreement. Ask a lawyer to establish which legal framework applies, then review its implications for notice, non-renewal and the settlement of outstanding amounts. A notice requirement alone does not guarantee renewal.

Set the cost of the next agreement before paying for the first

If the agreement refers to the ‘terms in force at the time of renewal’, ongoing franchise fees, marketing contributions or other obligations may change. Agreeing a single renewal fee is not enough if the remaining costs are left open. Request a schedule distinguishing one-off amounts payable on renewal from recurring charges throughout the next term.

Practical points to negotiate include:

• Setting the renewal fee as a fixed amount or using a clear calculation method, with an agreed cap where possible.
• Specifying which fees may change on renewal and which will remain fixed.
• Requiring the franchisor to provide a draft of the next agreement and its full cost schedule well before your deadline for choosing whether to renew.
• Establishing whether renewal requires you to sign a release of previous claims, and asking your legal adviser to review its implications.
• Clarifying what happens if you exercise your renewal right but the parties then disagree over terms left unresolved by the original agreement.

These are points for negotiation, not rights automatically granted to every buyer. Financially model both a scenario in which the relationship ends after the initial term and one in which renewal comes at a higher cost within the agreed limits. If the investment only works on the assumption of a cheap, unguaranteed renewal, reassess the purchase price or terms.

Turn conditions and deadlines into steps you can evidence

Scrutinise phrases such as ‘full compliance’ or ‘satisfactory performance’ where they are conditions of renewal. Ask for verifiable criteria and clarify whether a past breach that has been remedied can prevent renewal, or whether only outstanding material breaches can do so. Also establish how payment of outstanding amounts is to be evidenced, who confirms that the conditions have been met, and when that confirmation must be issued.

Create a calendar covering the renewal request deadline, the required delivery method, the designated address for notices and the franchisor’s response deadline. Do not assume that an email or silence constitutes acceptance unless the agreement says so. Keep proof of delivery and all responses, and ask for clear provisions covering negotiations that continue close to expiry. Sending a renewal request does not automatically give you the right to keep operating after the contract ends.

The practical takeaway: Before buying, ask for a clause that clearly sets out your renewal right, the renewal term, costs, conditions and deadlines. Assess the deal on the basis of the guaranteed term, and do not pay for additional years that the agreement does not secure.