Transferring Franchise Ownership in the UAE: Safeguards to Set Before Signing

When you turn an established business into a franchise in the UAE, you may select a suitable partner only to discover later that ownership of their company has passed to an investor you have never dealt with. Setting the terms for the start of the relationship is therefore not enough; you also need to specify what happens when an outlet is sold or control of the company changes. A clear transfer process protects business continuity and gives partners across the franchise network an orderly route to transition, rather than disrupting a viable operation.

1. Define what counts as a franchise transfer

Selling equipment does not automatically transfer the franchise agreement, and selling shares in a company does not necessarily amount to a direct assignment of that agreement. Before drafting your standard agreement, ask your legal adviser to distinguish between transactions that could change the operator or the person exercising effective control.

Your transfer policy should cover situations such as:

• Assigning the franchise agreement to another company.
• Selling an outlet’s assets where the buyer wishes to continue using the brand.
• Transferring ownership interests or shares in a way that changes control of the franchisee company.
• A merger or restructuring within a group of companies.
• Granting another party the right to operate the business or a sublicence to use the brand.

Do not rely on the phrase ‘any change in ownership’ without explaining it. This could place a simple internal reorganisation in the same category as an outright sale to an independent third party. Specify which changes require prior approval and which require notification only, along with the documents needed in each case.

Also distinguish between ownership and management: appointing a new manager may require checks on their qualifications, but it is not always a franchise transfer. This distinction prevents conflicting approval procedures and makes the policy workable.

2. Align transfers with the UAE legal framework

The UAE has no standalone federal law governing franchising alone, nor a general federal pre-contract disclosure regime covering all franchise agreements. The relationship is subject to the general rules on contracts under civil transactions legislation, Federal Decree-Law No. 50 of 2022 issuing the Commercial Transactions Law, and other legislation depending on the nature of the arrangement.

A particularly relevant provision is Federal Decree-Law No. 36 of 2021 on Trademarks. A licence to use a trademark does not give the licensee the right to assign it to a third party or grant sublicences unless otherwise agreed. Do not therefore assume that your approval of an equipment sale or an update to a trade licence also constitutes approval to transfer the right to use the trademark.

You must also check whether the relationship is a registered commercial agency subject to Federal Law No. 3 of 2022 Regulating Commercial Agencies. Not every franchise agreement is a registered agency, and the title of the agreement alone does not settle the question. If the relationship is registered, you will need to examine the implications of the transfer and the applicable registration and amendment requirements, rather than relying solely on a contractual assignment document.

Seek a legal review that takes account of the emirate, where the parties are established and any special regime that applies. Clearly distinguish the franchisor’s approval from approvals required from licensing authorities, the landlord and any other bodies; one does not replace another.

3. Design a workable approval procedure

A sound transfer policy goes beyond saying ‘at the franchisor’s discretion’. Establish a written application process that the franchisee must complete before making a final commitment to sell. The application should disclose the proposed buyer’s identity, beneficial owners, transaction structure, source of funding and plan for maintaining operations.

Set assessment criteria relevant to the business: financial capacity, the availability and commitment of the person responsible for operations, appropriate experience, willingness to complete training, and the ability to fulfil existing obligations. Do not treat a high sale price as proof of the buyer’s suitability; financing the purchase could drain the working capital the outlet needs after the transfer.

The procedure should specify:

• When an application is considered complete and its review begins.
• Who within your company has authority to grant approval.
• How additional information will be requested and reasons for refusal communicated.
• How long approval remains valid if completion is delayed.
• Whether the buyer will sign a new agreement or an agreement transferring the existing contract.

If you decide to charge the applicant for review or training costs, explain in advance how those charges are calculated and what they cover. Do not leave them as an open-ended demand that emerges at the point of sale. Make clear, too, that conditional approval does not authorise the buyer to operate before the conditions have been met.

4. Complete the transaction with a documented handover of responsibilities

Before the effective date, prepare a checklist covering both contractual and operational documents. Everyone should know who is responsible for outstanding amounts, prepaid orders, unresolved complaints and customer obligations that continue after the transfer.

For example, when selling an outlet that offers subscriptions or service packages, handing over the keys is not enough. Outstanding obligations should be recorded, the party responsible for fulfilling them identified, and arrangements for notifying customers reviewed where necessary, without compromising their statutory rights.

Also document the handover of the agreed assets, updates to system access permissions, completion of training, and verification of the necessary licences and approvals. Do not treat transfer approval as an automatic release of the former franchisee or any guarantors. State expressly which liabilities remain and which end, in accordance with the relevant law and contracts.

Practical takeaway: Before granting your first franchise, prepare a clear definition of a transfer, an application form, approval criteria and a handover record. The aim is not to prevent a sale, but to ensure that a change in ownership does not create a gap in accountability or leave the right to use the brand unclear.