Buying an Existing Franchise in the UAE: Formalising the Business Transfer

Buying an existing franchise outlet may seem the quickest route into franchising: a fitted-out location, an established customer base and an operation you can assess first-hand. But paying the price and collecting the keys do not necessarily mean that legal ownership of the business has transferred, or that you have acquired the right to operate under the brand. Before committing, distinguish between what you are buying from the seller, what the franchisor permits and the procedures that make the ownership transfer legally effective.

1. Establish what you are buying: the business or shares in the company?

The phrase ‘sale of a branch’ is not a sufficient legal description. The transaction could involve buying a business with its tangible and intangible assets, purchasing specific equipment only, or acquiring shares in the company that operates the outlet. Each route has its own documentation and procedures, so do not assume that one agreement will suit every scenario.

When you buy shares, the company continues to own its assets and remains a party to its contracts, although you must check change-of-control provisions and any approvals required from the relevant parties. When buying the business itself, you need to identify which elements will transfer to you and complete the procedures governing that transfer. Buying individual items of equipment does not automatically give you the trade name, customer base or right to use the brand.

Ask the seller for a schedule setting out what is included and excluded: equipment, furniture, stock, the trade name if transferable, and contracts requiring assignment. Also distinguish between assets owned by the seller and those leased or supplied by the franchisor. The seller cannot transfer ownership of an asset they do not own simply because it is located in the outlet.

Have a lawyer review this schedule before making a binding payment commitment. The legal nature of the transaction determines the procedures required, not the wording of the sales listing.

2. Understand the UAE’s formal documentation and registration requirements

The UAE has no standalone, comprehensive federal franchise law requiring a standard pre-signing disclosure document or general registration of franchise offerings. Depending on its nature, the relationship is governed by general contract law, civil and commercial transaction rules, and trademark and company legislation. Federal Law No. 3 of 2022 Regulating Commercial Agencies may apply if the relationship meets its requirements and is registered under its provisions; a franchise is not automatically a registered commercial agency.

For business transfers, a key law is Federal Decree-Law No. 50 of 2022 Issuing the Commercial Transactions Law. Article 39 provides that a transaction transferring ownership of a business or creating a right in rem over it must be formally documented or authenticated by a notary public, in accordance with the competent authority’s procedures, and entered in the Commercial Register. Otherwise, it is void.

The article specifies the information that must be included, such as the parties’ identities, the date and type of transaction, the business address and the elements covered. For a sale, the prices of tangible and intangible assets must be stated separately, along with the amount paid when the agreement is signed, how the balance will be paid and any relevant special conditions.

Article 40 provides that ownership does not transfer, either between the parties or in relation to third parties, until the transaction has been entered in the Commercial Register and a summary published in accordance with the statutory procedures and time limits. Do not therefore treat notarisation or the handover of keys as a substitute for completing registration and publication. Check with the competent authority in the relevant emirate, and establish whether any special regime applies to the business’s location.

3. Separate ownership of the business from the right to operate under the brand

The business sale may be completed without the buyer being entitled to operate under the same brand. Franchise rights derive from an agreement with the franchisor, not from ownership of the refrigerators, furniture or shop fittings.

Ask for written confirmation of the proposed route: will the existing agreement be assigned with the franchisor’s consent, or will you sign a new agreement? What document will confirm the franchisor’s acceptance of you as the buyer? Do not rely on a message from the seller saying approval is ‘expected’, or assume that the remaining term or financial conditions will stay the same.

Check that the asset descriptions in the sale agreement align with what the franchisor allows you to use. If the transaction includes branded materials or brand-specific fittings, clarify when your right to use them begins and what happens if approval is not granted. Separately check the transfer of rights to occupy and use the premises, as well as key contracts; registration in the Commercial Register does not replace the necessary third-party consents.

You can negotiate to make completion of the purchase conditional on obtaining specified approvals, with a deadline and a clear mechanism for dealing with any sums already paid if those conditions are not met. This is a contractual safeguard that needs to be drafted, not an automatic right you can assume exists.

4. Coordinate completion, payments and documentation

Draw up a completion checklist agreed by the seller, buyer and their advisers, rather than treating payment separately from the transfer procedures. The checklist should identify who is responsible for each step, the evidence required to confirm completion, its cost and its deadline.

In practice, the checklist should include:

• The final sale agreement, asset schedules and detailed price breakdowns.
• The franchisor’s approval and the agreement under which the buyer will operate.
• Documents for notarisation or authentication, registration and publication, as required by the applicable procedures.
• An inventory and handover record confirming the assets present, their condition and the handover date.
• The allocation of procedural charges and professional fees between the parties.

Discuss a payment mechanism with your adviser that links instalments to verifiable milestones. Do not assume that an escrow account or deposit-holding service is available on suitable terms without checking. Specify in the contract who will run the outlet and bear its expenses during the interim period, without treating that arrangement as a substitute for the legal transfer of ownership.

The practical takeaway: Do not buy a ‘ready-to-run outlet’ on the basis of a vague description. Define exactly what the transaction covers, formally document and register the transfer in accordance with the law, and separately secure the right to operate under the brand before treating the acquisition as complete.