Initial Franchise Fees in the UAE: Entitlement and Refunds

When you decide to franchise an existing business in the UAE, setting the initial fee is not enough. The more important questions are: what does the franchisee receive in return, when is the franchisor entitled to retain the fee, and what happens if the outlet never opens? Written answers reduce disputes and protect trust within the franchise network. That requires a clear policy before you accept the first payment, rather than a new interpretation when the project runs into difficulties.

Separate initial fees from other payments

Start with a list of every payment a prospective franchisee makes from the start of negotiations through to opening. Distinguish between any reservation fee, the initial franchise fee, additional training costs, equipment purchases and ongoing fees. Grouping these amounts under a single heading such as ‘joining fees’ makes settling the accounts harder later, particularly where the franchisor receives money intended for an external supplier.

The model restaurant franchise agreement published by the Ministry of Economy and Tourism includes an initial fee, followed by a percentage of turnover in return for intellectual property rights. However, it is a contract template, not a government fee schedule or a rule prescribing a particular amount. Your fee structure should therefore reflect the rights and services your business actually provides.

Set out in an internal document what the fee covers, such as the right to join the franchise system, access to operating materials, initial training and pre-opening support. Then specify what it excludes: rent, fit-out, licences or trainees’ travel, if charged separately. Do not describe the entire fee as a ‘training cost’ if part of it pays for contractual rights; accurate descriptions matter when assessing what has been delivered and what remains outstanding.

Link entitlement to verifiable milestones

There is a difference between when a payment is due and when the franchisor becomes entitled to it under the contract. A sum may be paid upfront, while some obligations are linked to site approval or the start of training. Make this distinction clear rather than assuming that receipt of a bank transfer settles every question of entitlement.

You can organise the policy in a table with four elements for each stage:

• The specific milestone, such as signing the agreement or delivering the training programme.
• The amount payable and its payment deadline.
• The corresponding right or service.
• The document evidencing completion or delivery.

Test these stages against your existing business procedures. If preparing an opening plan requires site visits and assessments, keep the reports. If training forms part of what the fee covers, record its content, attendance and duration, and whether repeat training is included. Simply sending a training invitation should not count as evidence that the training itself has been delivered.

Also define which external expenses require the franchisee’s approval before they are incurred. Commissioning bespoke design work before a site is approved, for example, may create an avoidable cost. Both parties should know in advance who authorises the expense, who bears it, and whether the order can be cancelled or the payment refunded by the supplier.

Agree in advance how to settle matters if the outlet does not open

The phrase ‘non-refundable fees’ does not, on its own, explain what happens in every situation, and should not be treated as an absolute legal safeguard. Develop a settlement mechanism that distinguishes between the reasons a project fails to proceed, then have a UAE legal adviser check its validity and consistency with the agreement.

The prospective franchisee withdraws before services are provided: Specify whether the payment will be refunded or whether defined, documented expenses will be deducted in accordance with the agreement. Avoid open-ended deductions labelled ‘administrative costs’ without explaining their basis.

Site approval or the necessary permissions cannot be obtained: State how long the parties have to find an alternative, whether services will be suspended during that period, and how the account will be settled when the deadline expires. Do not confuse the franchisor’s approval of a site with approval from the relevant government authority.

The franchisor fails to fulfil its obligations: Address the consequences of failing to provide the agreed training or rights, rather than automatically applying the policy for a prospective franchisee’s withdrawal. Responsibility varies according to the cause of the failure and the terms of the contract and applicable law.

Both parties agree to postpone the opening: Record whether payments will remain credited to the project, which services will need to be repeated, and any additional charges requiring fresh approval.

For each scenario, specify how to request a settlement, the documents required, how the balance will be calculated, and the agreed deadlines for responding and making payment. Do not make signing an unclear settlement agreement a condition of receiving a statement of account.

Review the policy within the UAE legal framework

The UAE does not have a standalone, comprehensive federal franchise law, nor a general federal regime requiring a standard disclosure document or a waiting period for all franchise agreements. This does not mean that franchising is unregulated: the general rules of civil and commercial transactions law apply, alongside legislation relevant to the nature of the relationship.

Relevant legislation includes Federal Decree-Law No. 50 of 2022 on Commercial Transactions and Federal Decree-Law No. 36 of 2021 on Trademarks. Federal Law No. 3 of 2022 Regulating Commercial Agencies may also apply where the relationship meets its conditions and is registered under its provisions; do not assume that every franchise is a registered commercial agency.

Before collecting fees, give the prospective franchisee a clear statement of what they receive in return, when payments fall due and entitlement arises, and the refund policy. Ensure every version is consistent with the agreement. This is a prudent contractual practice, not a claim that a mandatory federal disclosure template exists.

Practical takeaway: Prepare a single table linking each payment to a right or service and evidence of delivery, and attach the settlement scenarios. If you cannot explain what happens to the money when the project stops, do not start collecting it.