Buying an Existing Franchise in the UAE: Paying the Seller in Instalments

The owner of an existing franchise outlet in the UAE may offer to let you pay part of the price upfront and the balance in instalments funded by operating revenue. That may ease pressure on cash flow, but it could give the seller rights that go beyond demanding an overdue payment. When buying a franchise, assessing the brand and the outlet’s performance is not enough: you also need to understand which rights the seller retains after handover and how those rights fit with your agreement with the franchisor.

Understand what you are buying and what the seller is financing

Start by establishing the structure of the deal: are you buying the business and its assets, or shares in the company that operates it? The distinction matters, because the provisions governing the sale of a business do not automatically apply in the same way to a share purchase. Ask your lawyer to establish the legal nature of the transaction before agreeing on security for the instalments.

When buying the business itself, distinguish between the price of equipment, stock and intangible assets, and any fees for transferring the franchise or obtaining the franchisor’s approval. Paying for the business does not, on its own, give you the right to use the brand. Equally, the franchisor’s approval does not extinguish the seller’s security rights.

Ask for a short term sheet covering:

• The cash price, the total price payable in instalments and any agreed financing charges.
• The deposit, payment dates and any large final payment.
• The assets included in the sale and those the owner is excluding.
• The security required and the circumstances in which the seller can demand immediate payment of the outstanding balance.
• Early repayment terms and how each payment will be documented.

Do not compare only the monthly instalment with a bank loan repayment. Compare the total commitment, security requirements, consequences of default and flexibility to exit the financing arrangement.

Distinguish between franchise rights and the seller’s lien

The UAE has no standalone federal franchise law requiring a standard franchise-specific disclosure document before signing. The relationship is governed by general contract rules, civil and commercial law, and other relevant legislation. Federal Law No. 3 of 2022 Regulating Commercial Agencies may apply if the relationship meets its conditions for application and registration. A franchise agreement is not automatically a registered commercial agency.

For seller-financed business purchases, the provisions of Federal Decree-Law No. 50 of 2022 Issuing the Commercial Transactions Law are particularly relevant. The term ‘seller’s lien’ here means a legal right securing payment of the purchase price, not permission to use a brand or operating system.

As an exception to the bankruptcy provisions, Article 44 allows a seller who has not received the full purchase price to assert against the creditors in the buyer’s bankruptcy a right to rescind the sale and recover the business, or a lien, provided that the relevant right was reserved in the sale agreement and expressly mentioned in the published summary of that agreement. These rights are limited to the assets they cover.

Article 49 also allows the seller, where the price or its outstanding balance remains unpaid, to apply to the judge hearing urgent matters for permission to sell the assets covered by the lien at public auction, once eight days have passed after notifying the debtor in possession of the business. This is a court procedure, not permission for the seller to enter the premises and take possession unilaterally.

Test the instalments against your operating budget

Ask your accountant to prepare a monthly cash-flow forecast that includes the purchase instalments alongside rent, wages, supplies, royalties and other commitments. An accounting profit alone does not demonstrate your ability to repay: instalments may fall due before sales receipts arrive or while you need to buy fresh stock.

Test scenarios involving lower sales, delayed receipts and an unexpected operating expense. If you would not retain a reasonable cash reserve after each instalment, negotiate a different deposit or repayment schedule rather than relying on the seller’s most optimistic forecasts.

Pay particular attention to any large final, or ‘balloon’, payment. If repayment depends on a future loan that has not been approved, you have a funding gap, not a complete plan. Nor should you assume that a bank will agree to finance you while the seller retains rights over the business assets: show the bank the proposed security structure early on.

It can also help to tie the start of repayments to a clear, documented event, such as completion of the agreed handover and satisfaction of the sale completion conditions, rather than a date that might fall before you are legally and practically able to operate.

Agree default and discharge arrangements before signing

Negotiate a precise definition of default, a documented notification procedure and a contractual opportunity to remedy late payment where the law permits. Do not assume these clauses remove the legal procedures available to the seller: ask your lawyer to review their effect and enforceability.

Also review any acceleration clause: does one late instalment make the entire outstanding balance immediately payable? Does that also apply to a separate dispute with the franchisor? Avoid broad links that turn every operational breach into a financing crisis.

Document how any claim that the seller has breached the agreement will be handled. Do not assume you can automatically stop paying instalments or deduct your claims from them. Subject to legal review, you could negotiate a clear mechanism for holding a disputed amount separately or settling claims.

Finally, specify the procedures for confirming that the debt has been discharged and releasing security after repayment. Article 47 provides that registration preserves the lien for five years and that the registration lapses if it is not renewed within that period. It also regulates its removal by mutual agreement or a final court judgment. Ask for an undertaking to provide discharge documents and co-operate with removal of the registration; do not settle for a receipt for the final instalment alone.

Practical takeaway: Do not accept seller finance until three things are in place: an instalment schedule your cash flow can support, clear limits on the seller’s rights if you default, and a documented process for releasing the business from the seller’s security rights once you have repaid.