Sublicensing in UAE Franchising: Setting Clear Boundaries

You may grant a franchise to one company, only to discover that another company is managing part of the customer experience or offering services under your brand. Not every use of an external provider amounts to sublicensing, but unclear boundaries can allow rights to extend beyond what you intended to grant. Before expanding your franchise network in the UAE, establish who may operate the concept, who may provide supporting services, and when your written consent is required.

What is the difference between a supporting service and sublicensing?

Sublicensing occurs when a franchisee grants another party a right derived from the rights it has received, such as using the brand to operate the business. By contrast, hiring a company to clean the premises or maintain equipment does not, in itself, give that company the right to conduct the business under the brand. What matters is the rights granted and how the arrangement works in practice, not simply the title of the agreement.

A grey area arises when an external provider handles customers, sells products in its own name alongside your brand, or runs a separate sales outlet using your operating system. Such arrangements need scrutiny before being treated as merely an ‘operational service’.

To draw the boundaries, answer the following questions:

• Who enters into the transaction with the customer and issues the invoice?
• Who is responsible for the service and for handling complaints?
• Can the external provider use the brand independently?
• Does it receive the operations manual to carry out a specific task, or to operate the entire concept?
• Does it work on the franchisee’s behalf and under its supervision, or does it run a business of its own?

These are indicators to investigate, not a definitive legal test. The franchisee may remain the visible point of contact for customers while having granted another party substantive operating rights that require specialist review.

What do UAE rules say?

The UAE has no standalone federal franchise law, nor a general federal regime requiring a standardised disclosure document for all franchise agreements. The relationship is governed by general contract rules and civil and commercial law, alongside trademark, competition and other laws relevant to the activity. The law regulating commercial agencies may apply if the relationship meets its conditions; it should not be assumed that every franchise automatically falls within its scope.

Trademark licensing is regulated by Federal Decree-Law No. 36 of 2021 on Trademarks. One of its rules is that a licensee may not assign the licence or grant sublicences unless otherwise agreed with the trademark owner. It also requires a trademark licence agreement to be in writing and notarised. Recording it in the register is not mandatory, although an application for registration may be made.

The draft restaurant franchise agreement published by the Ministry of Economy and Tourism illustrates how this principle can be applied contractually: it prohibits the franchisee from sublicensing or allowing a third party to use the trade name, trademarks or system. However, it is a guidance template, not a law imposing the same prohibition on every agreement.

Nor does a franchisor’s approval of an external provider constitute government permission to carry on the activity. The provider’s economic licence and any necessary approvals must be checked against its proposed tasks and the emirate concerned. Initial approval to establish a business does not, on its own, authorise it to begin operating.

Turn the boundaries into workable contract terms

Before offering a franchise, choose a clear position: either prohibit sublicensing or allow it in specified circumstances subject to prior written consent. Avoid broad wording such as ‘third parties may be engaged’ without explaining whether this includes transferring rights to use the brand or is limited to supporting services.

The agreement should address four connected elements:

• Reserved rights: Specify which uses of the brand, name and system may not be granted to others.
• Permitted services: Describe the supporting work that may be outsourced without granting an independent right to operate.
• Approval procedure: Set out the information to be submitted, who is authorised to approve the request, and the scope and duration of that approval.
• Continuing responsibility: Make clear that engaging an approved provider does not release the franchisee from its agreed obligations.

If sublicensing is permitted, define the rights, location, activity and term precisely, and review how they relate to the original licence. Also address what happens to the sublicence if the original rights end, rather than leaving an external provider expecting to continue using the brand after the contractual basis for doing so has disappeared.

These matters require consistent legal drafting. An operational approval sent by email should not inadvertently become a broad intellectual property licence.

Establish an approval procedure before the first request

Prepare an internal application form for engaging external providers. It should cover the company’s identity, scope of work, location, how the brand will be displayed, the systems it will use and a draft of the proposed agreement. Ask the operations manager and legal adviser to review the request within their respective areas of responsibility.

For example, a request to engage a delivery company differs from a request to allow an independent operator to prepare and sell products under the brand at another location. The first may be a supporting service, while the second calls for a review of operating rights and sublicensing. Do not give both arrangements the same approval simply because they are described as ‘operational partnerships’.

Keep a record of approvals and their conditions, and require an updated application if the provider, location or scope of work changes. Include the application procedure in the operations manual, but do not use the manual to extend rights that the agreement prohibits.

Practical takeaway: Before granting your first franchise, set clear written boundaries between purchasing a service and granting a right to operate. Make any exception subject to specific approval and legal review, so that your franchise network expands through parties you know and rights you can control.