Franchise Agreement Renewal in the UAE: Terms to Set Early

When turning an established business in the UAE into a franchise model, founders often focus on opening the first franchised outlet and put off an important question: what happens when the agreement expires if both parties want to continue? Renewal is not merely an administrative detail; it is a decision that affects the franchisee’s investment and the franchisor’s ability to plan. In franchising, a stable relationship starts with clear terms for continuing the arrangement, agreed before signing—not unexpected negotiations as the term draws to a close.

1. Define the type of renewal and the legal framework

Start by distinguishing between three arrangements: automatic renewal unless notice to the contrary is given; a renewal option that the franchisee can exercise upon meeting specified conditions; and renewal requiring fresh agreement from both parties. Do not simply describe an agreement as ‘renewable’: this does not explain who makes the decision, when it must be made or which conditions apply.

The UAE has no standalone federal law governing franchising alone, nor a general federal regime requiring a standard disclosure document for all franchise agreements. The relationship is governed by the general rules on contracts in the Civil Transactions Law and Federal Decree-Law No. 50 of 2022 Issuing the Commercial Transactions Law, alongside other relevant legislation, including trade mark and competition laws and local licensing requirements.

If the arrangement meets the conditions for a registered commercial agency, Federal Law No. 3 of 2022 Regulating Commercial Agencies must also be examined. Its provisions may affect termination, non-renewal, notices and compensation, so copying a renewal clause from an unregistered franchise agreement is not enough. Seek a legal review to establish how the relationship should be classified before finalising deadlines and procedures. Do not assume that the agreement’s title alone determines its legal status.

A professional association’s code of conduct, such as QFA’s, is not a substitute for the law. It can, however, provide a professional reference point for clear obligations and responsible dealings within the franchise community.

2. Turn renewal eligibility into verifiable conditions

If you offer the franchisee the possibility of renewal, make the conditions clear from the outset. Wording such as ‘subject to the franchisor’s satisfaction’ leaves considerable room for disagreement. Specific criteria help both parties understand what is required and gather supporting evidence throughout the agreement’s term.

An eligibility checklist might cover:

• Valid licences required for the business and a continuing right to use the premises throughout the proposed renewal term.
• Settlement of established amounts due, with a clear mechanism for handling genuinely disputed sums.
• Remedying documented material breaches in accordance with the agreed procedures and deadlines.
• The contracting entity’s ability to continue meeting its operational and financial obligations.
• Submission of the renewal application and required documents by the specified deadline.

Distinguish between an ongoing material breach and an issue that has been resolved and closed. Do not make every past issue an open-ended ground for refusing renewal. If eligibility depends on a performance indicator, define how it is calculated, the source of its data and any relevant exceptions, rather than leaving its interpretation until the relationship is nearing its end.

For an established business preparing to grant its first franchise, test these criteria against your existing outlets’ records: can you readily produce the evidence? If not, simplify the requirements or improve your record-keeping before turning them into contractual obligations.

3. Separate the right to renew from the financial and contractual terms

Both parties may agree to continue the relationship, then disagree over what ‘renewal on the prevailing terms’ means. Does it mean extending the existing agreement or signing a new version? Can the fees or scope of rights change? The original agreement should answer these questions clearly.

If a renewal fee applies, state how it will be determined, when it falls due and what it covers, rather than hiding it behind a phrase such as ‘the fees applicable at the time’. It need not match the initial franchise fee: the services involved in establishing the relationship may differ from the steps needed to continue it. Also explain what happens to any payment made if renewal is not completed.

If renewal requires the franchisee to sign the latest form of agreement, specify how it will be made available and allow adequate time for review. Explain whether changes may affect financial obligations or operating rights, rather than presenting renewal as a guaranteed continuation on the previous terms.

Check, too, that the renewal term is consistent with the rights the franchisor can grant. If use of the trade mark depends on a licence from another owner, do not promise rights beyond your authority. Federal Decree-Law No. 36 of 2021 on Trade Marks governs trade mark licensing matters, making a review of the chain of rights essential before promising continued use.

4. Establish a documented decision-making process

Turn the renewal clause into an internal procedure with clear responsibilities: who receives the application, who checks outstanding payments and licences, who approves the decision, and how is the other party notified? Ensure that deadlines comply with the agreement and applicable law, rather than relying on a verbal reminder from the relationship manager.

Ideally, each renewal file should contain the application, eligibility checklist, supporting evidence, details of any outstanding requirements, the final response and the signed document. When asking for a shortcoming to be addressed, specify what is required, how completion should be demonstrated and the deadline for responding. This documentation helps prevent inconsistent messages from the operations team and legal department.

If the review is delayed until close to expiry, do not leave continued operations or the acceptance of payments unaddressed. Where necessary, ask a legal adviser to draft an interim arrangement defining its duration and effects, without assuming that it automatically renews the relationship or overrides statutory rights.

Practical takeaway: Before granting your first franchise, prepare a clear renewal clause, an eligibility checklist and a documented decision-making process. The best time to settle the terms for continuing the relationship is at the outset, when both parties can assess them without the pressure of an expiring agreement.