Aligning Lease and Franchise Agreements in the UAE

Your existing business may be successful, but your first franchisee’s premises may come with conditions you have never encountered at your own branches. If the lease expires before the franchise term ends, or the landlord prohibits essential alterations, implementing the business model becomes harder, however well the business is run. Expanding through franchising in the UAE therefore requires you to align both agreements before committing to premises, rather than resolving conflicts after paying for the fit-out.

1. Separate site approval from the right to use the premises

A franchisor’s approval of a proposed site means it suits the business model under the agreed criteria. It does not establish that the tenant can meet every brand requirement there. Equally, signing a lease does not mean the franchisor has approved the site or that its intended use is automatically permitted.

Government business set-up procedures make clear that premises must comply with the requirements of the relevant economic authority, land-use rules and other competent authorities. Check whether the intended use is permitted alongside the site’s commercial suitability, keeping responsibility for each review clear.

Create an alignment checklist with three columns: business model requirements, what the lease permits, and gaps to resolve. Important items include access hours, loading and unloading, equipment installation, signage, utility capacity and maintenance work. Do not describe a site as having ‘final approval’ while landlord consent for an essential element is still outstanding.

For an established business, start with your current branch’s lease. Have you secured any concessions through a personal relationship or exceptional negotiations? Do not build them into the franchise model as standard assumptions if a franchisee may be unable to obtain them.

2. Align agreement terms and the dates obligations begin

The lease signing date, handover date, rent commencement date, opening date and start of the franchise term are not necessarily the same. Confusing them could leave the franchisee paying for premises they cannot operate from, or using up part of the franchise term during the fit-out.

Create a single timeline showing these dates, then test the following scenarios:

• The landlord delays handover or the provision of agreed utilities and services.
• The fit-out takes longer because of the actual condition of the premises.
• The lease expires while the franchise term is still running.
• There is an option to renew the franchise, but no corresponding right ensuring continued occupation of the premises.

Do not assume that matching the length of both terms solves the problem: renewal conditions and notice deadlines may differ. Nor should you present a future lease renewal as guaranteed if it requires fresh landlord consent.

Agree contractually how delays will be handled: who must notify whom, what supporting documents are required, and whether opening dates or specified payment due dates will change. These are negotiated arrangements that need to be documented, not automatic rights arising simply because a franchise exists.

3. Make the final commitment subject to verifiable conditions

It is better to prepare a list of conditions that must be met before making a final commitment than to rely on a general phrase such as ‘subject to approvals’. For each condition, identify who is responsible for meeting it, the document that proves it has been met, the deadline and what happens if it is not satisfied.

The list may include the franchisor’s written site approval, securing an appropriate right to occupy the premises, and landlord consent for the required works. These conditions should be aligned across the documents as far as possible, so the franchisee does not become bound by a lease they cannot withdraw from while the grant of the franchise remains pending.

For example, the business model may require alterations to the frontage and the installation of fixed fittings. Verbal consent from a leasing manager is not enough. Ask for the permitted works to be specified in a binding document, then link design approval to that document. If the works cannot proceed, the documents should set out the decision-making process, which sums will be refunded or retained, and on what basis.

A franchisor cannot bind the landlord to an undertaking contained only in the franchise agreement. Any right that needs to be enforceable against the landlord requires their agreement within the lease or another suitable agreement reviewed by a qualified adviser.

4. Calculate premises-related obligations beyond the rent

Do not compare sites on annual rent alone. Check deposits, service charges, maintenance, fit-out periods, required insurance, and responsibility for removing improvements and reinstating the premises to the agreed condition.

Also establish who owns the fixtures and fittings, which can be moved, and which require landlord consent for removal. An essential part of the brand identity may be installed in a way that makes retaining or relocating it expensive.

Prepare a cost schedule for each obligation, distinguishing confirmed amounts from estimates and unresolved items. Then assess whether the franchisee can afford a period of rent payments before opening. The aim is not to recalculate franchise fees, but to prevent premises-related obligations from undermining the viability of the business model.

5. Review the legal framework and both agreements together

The UAE has no standalone federal law governing franchising alone, nor a general federal pre-contractual disclosure regime specifically for franchises. The relationship is subject to general contract and commercial transaction rules, trade mark and competition legislation, and local licensing requirements. Federal Law No. 3 of 2022 on the Regulation of Commercial Agencies may apply to registered arrangements that meet its conditions; not every franchise agreement is automatically a registered commercial agency.

The lease provisions, meanwhile, need to be reviewed against the applicable legislation and the jurisdiction of the relevant authority, taking account of the emirate and the property’s location. Ask for the lease, franchise agreement and their schedules to be reviewed together, rather than treating each document in isolation.

Practical takeaway: Before approving your first franchisee’s premises, prepare an alignment checklist covering use, terms, approvals, costs and the consequences if things go wrong. Do not make a commitment involving non-refundable expenditure until you understand the gaps and have allocated responsibility for them in writing.