Buying a Franchise in the UAE: Getting Renewal Terms and Costs Right

When buying a franchise in the UAE, it is easy to focus on start-up costs and put off thinking about the end of the agreement. Yet renewal terms should inform your buying decision from day one: does the term give you a realistic opportunity to recoup your investment? Can you continue without accepting unknown obligations? In franchising, a stable relationship starts with a written understanding of what happens when the term ends, not a verbal promise that renewal is ‘routine’.

1. Distinguish between a right to renew and an opportunity to apply

Start by reading the term and renewal clause separately from the sales pitch. ‘The franchisee may apply for renewal’ does not mean the franchisor must agree, while ‘by mutual agreement’ leaves continuation subject to fresh negotiations. Even a conditional right to renew needs objectively verifiable conditions, so that approval does not depend on open-ended discretion.

Ask for written answers to the following questions:

• Who decides whether to renew, and on what grounds can renewal be refused?
• When must the application be submitted, by what method and to which address?
• By when must the franchisor respond, and what happens if it does not?
• Can past breaches prevent renewal even after they have been remedied?
• Is there a period in which remediable breaches can be put right before a decision is made?

Be wary of a requirement for ‘full compliance throughout the term’ if it allows a minor breach that was previously remedied to be used to block renewal. Negotiate for the decision to be based on outstanding material breaches, with written notice and a reasonable opportunity to remedy them, depending on their nature. If meeting operational targets is a condition of renewal, ask for the performance measurement method to be documented rather than relying on wording such as ‘to the franchisor’s satisfaction’.

2. Understand the legal framework without assuming automatic protection

The UAE has no standalone federal framework governing franchising as a distinct contractual relationship, nor a mandatory franchise-specific pre-sale disclosure regime. Do not therefore assume that you have an automatic right to renew or a special review period simply because the document is called a franchise agreement. Contractual obligations and general legal rules remain important in determining both parties’ rights.

Depending on its nature and where it is performed, the relationship is subject to the general rules of the Civil Transactions Law, including provisions on contracts and good faith, and the Commercial Transactions Law issued under Federal Decree-Law No. 50 of 2022. Trade mark, competition and other legislation may also apply, depending on the issues raised by the agreement. The principle of good faith alone does not turn a fixed-term agreement into an indefinite obligation to renew.

If the relationship meets the requirements for a commercial agency and is registered in the Commercial Agencies Register, it may fall under Federal Law No. 3 of 2022 Regulating Commercial Agencies. In that case, the provisions on agency termination, non-renewal, notices and dispute resolution become important; analysing the renewal clause alone is not enough. Not every franchise is a registered agency, and company registration or a trade licence is not the same as agency registration.

Ask a UAE lawyer to identify the applicable legal regime before agreeing the wording, particularly where a free zone with its own legal system is involved. Avoid relying on explanations based on the old Commercial Agencies Law without checking the legislation currently in force.

3. Calculate the cost of continuing, not just the renewal fee

The renewal fee may look reasonable, while the larger costs come from updating the fit-out, equipment and systems, or temporarily suspending operations. Ask for an itemised list of all requirements for continuing, distinguishing those that are mandatory from those that depend on an assessment of the outlet’s condition at renewal.

Prepare a budget covering the renewal fee, refurbishment works, equipment replacement, IT system upgrades, legal review fees and the cash-flow impact of any closure. Distinguish confirmed expenses from estimates, and do not treat future funding as guaranteed.

Pay particular attention to any requirement to sign ‘the franchisor’s then-current form of agreement’. This could mean changes to ongoing fees, the length of the relationship or operating obligations. Ask for clarity on which provisions may change, how increases will be calculated and when you will receive the draft new agreement before your decision deadline.

It is also worth negotiating recognition of upgrades you have recently paid for. If the franchisor requires you to change equipment during the term, will it demand another replacement at renewal? Ask for a written schedule or objective criteria linking replacement to the asset’s condition and technical requirements, rather than simply to the renewal date.

4. Align renewal with your lease, financing and decision timetable

The franchisor’s approval to continue does not guarantee that you can stay at the premises. Compare the franchise expiry date with the lease expiry date, their respective renewal conditions and notice deadlines. Avoid committing to a long lease or additional fit-out works before the prospects for continuing the franchise are clear, and discuss contractual arrangements with the relevant parties to address any mismatch in dates.

Also review the term of any financing linked to the required upgrades. If repayments extend beyond the renewed franchise term, ask your financial adviser to test your ability to repay without assuming another renewal. A possible period of operation is no substitute for a clear contractual right.

Before signing, draw up a timetable covering the renewal application, the franchisor’s response, receipt of the new agreement, approval of works and notice to the landlord. Assign responsibility for tracking each deadline, and retain evidence that notices were sent using the method specified in the agreement.

The practical takeaway: Do not buy on the assumption that renewal is guaranteed. Buy only after understanding the conditions, costs and deadlines for continuing, documenting the terms you can negotiate and reviewing the legal rules that apply to your particular relationship.