Buying a Franchise in the UAE: Getting Supplier Purchasing Terms Right

Franchise fees may look straightforward, while a significant cost lies hidden in a clause requiring you to buy materials and products from suppliers designated by the franchisor. Consistent quality is a legitimate aim within a franchise network, but accepting a supplier list should not mean accepting prices and terms that can change without limits. Before buying a franchise in the UAE, turn your purchasing obligations into an itemised list you can cost, and set out in the contract how price rises or supplier failures will be handled.

1. Establish what you must buy and who actually sells it

Start by requesting a written list of mandatory purchases, rather than just supplier names. The list should distinguish between products made to a brand-specific recipe or specification, commercially available goods, packaging, uniforms and consumables. Also ask whether the requirement covers everything your outlet needs or only certain items.

For each item, record the specification, approved supplier, minimum order quantity, delivery lead time, remaining shelf life on receipt and payment terms. Request actual quotations valid for your proposed location: the warehouse price alone does not reveal the cost of getting goods to your outlet.

Check who will issue the invoice: the franchisor, an affiliated company or an independent supplier? This determines which party you pursue if goods are not delivered or are defective. If the franchisor selects the supplier but does not sell to you directly, do not assume it guarantees the supplier’s performance unless it expressly agrees to do so.

2. Understand the legal protections without assuming automatic rights

The UAE has no standalone, comprehensive franchise legislation, nor a mandatory disclosure regime specifically for franchise sales that automatically requires franchisors to provide a detailed document covering supplier arrangements. The relationship is generally governed by the Civil Transactions Law and the Commercial Transactions Law, alongside intellectual property legislation and other relevant laws.

Ask for the supplier list, supplier approval terms and price adjustment mechanism to form part of the contract or a signed schedule. Do not treat a presentation or verbal promise as a substitute for a clear contractual commitment. A standard contract template is no substitute for reviewing the brand’s particular supply chain.

Franchise arrangements are also subject to competition law. Requiring purchases from a particular supplier is not automatically unlawful, but restrictions that could harm competition need legal assessment in light of the circumstances. If the relationship is a registered commercial agency, Federal Law No. 3 of 2022 on the Regulation of Commercial Agencies may also apply. This regime can have implications for importing the goods it covers, so do not assume you can source an alternative from abroad simply because the brand has approved it.

3. Calculate the total supply cost, not just the unit price

Build a cost model for each main purchasing category. Add freight, insurance, customs clearance, applicable duties and charges, storage and any handling costs to the unit price. Also establish who bears exchange-rate fluctuations if invoices are in a foreign currency, and when the risk of damage to goods in transit passes to you.

The supplier with the lowest prices may prove more expensive if it requires large orders paid for in advance or delivers goods with a short remaining shelf life. Review the impact on cash flow, storage space and waste. Ask an existing franchisee to explain the ordering, delivery and invoicing cycle, using supporting documents that can lawfully be shared.

Ask the franchisor in writing whether it receives commissions, rebates or other benefits from approved suppliers, and whether these arrangements affect the price you pay. Do not assume you are automatically entitled to a share; negotiate disclosure and how their impact will be addressed in the contract. Compare alternatives against the same specification and total delivered cost, rather than the advertised price alone.

4. Negotiate a clear process for price changes and alternative suppliers

Avoid wording that allows prices or suppliers to change immediately and without notice. Request a process specifying how changes will be communicated, when they take effect, what happens to confirmed orders and how pricing errors can be challenged. You could negotiate periodic price reviews supported by evidence or agreed indices, rather than leaving the decision entirely open-ended.

Approval of an alternative supplier needs a workable procedure, not a general phrase such as ‘subject to the franchisor’s approval’. Specify the documents and samples required, who will assess them, the cost of testing, the response deadline and the reasons that must be given for any refusal.

Include an urgent procedure for shortages of essential items: a pre-approved backup supplier or temporary approval of an alternative that meets the specifications. Do not assume the franchisor’s silence amounts to approval. If both parties want that outcome, it must be expressly drafted and reviewed for legal suitability, particularly for products subject to specific safety requirements.

5. Link quality standards to delivery acceptance and rejection rights

Review the supply contract alongside the franchise agreement, and establish which takes precedence if their terms conflict. The documents should explain how deliveries are inspected, how shortages or damage are recorded, the deadline for reporting problems and who pays for returns and replacements. Distinguish between defects apparent on delivery and those that emerge only during use.

Ask for explicit provisions covering deliveries that fail to meet specifications or have a remaining shelf life different from that agreed, rather than relying on the supplier’s future goodwill. Establish how the value of rejected goods will be settled and who will retain the evidence and correspondence.

Practical takeaway: Before signing, bring together three linked documents: a priced list of mandatory purchases, a written process for price adjustments and approval of alternatives, and clear delivery acceptance and rejection terms. If you cannot establish the cost of the commitment or a way to deal with supplier failure, the purchasing clause is not yet ready to accept.