Commercial Franchising: Mitigating Contractual and Operational Exposures

Introduction

The commercial franchise sector in the Kingdom expanded to encompass over 750 active systems by mid-2023, marking Saudi Arabia as the premier market for franchising in the Middle East. While highly lucrative, it presents complex legal challenges that necessitate professional structuring by specialized corporate attorneys.

History

Nov 2025

The sector

Commercial Activities

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Initially, a commercial franchise agreement is formed between two parties. The franchisor is the party who owns a trademark for a product, commodity, or service and grants the right to use it to another party. To be eligible to grant a franchise, they must have engaged in the commercial activity of the franchise for at least one year. The other party is called the "franchisee," who is the one who obtained the right to use a trademark through a franchise agreement. In this relationship, both parties of the franchise agreement need a legal path with the assistance of specialists to minimize potential future risks. Franchise activities and services are regulated under the umbrella of the Small and Medium Enterprises General Authority (Monsha'at), and the Franchise Law governs the relationships arising from franchise agreements and contracts. Therefore, several essential matters must be verified: Delivering a disclosure document containing all required details and information to the franchisee at least fourteen days before concluding the agreement. The existence of a written agreement between both franchise parties containing all the obligations and rights of the franchisor. In the absence of a written agreement, the franchisor is bound by all the required clauses in Article Eight of the Franchise Law. The franchise agreement must be written in Arabic, or translated into Arabic.

In drafting franchise agreements, the importance of utilizing legal services becomes clear. With the help of specialists, you will be able to obtain a franchise agreement that includes all legally required terms. It will also ensure the formalization and drafting of the obligations of the franchising parties in a way that safeguards the rights of all involved. The agreement defines the rights of the parties regarding the granting of sub-franchises. Additionally, a good legal service will ensure that a dispute resolution mechanism is specified without harming the contract subject to the franchise. In conclusion, commercial franchising is an urgent economic need for both the franchisor and the franchisee alike. To reduce risks and face challenges during the journey of projects operating under this model, care should always be taken to take these steps hand in hand with legal professionals specializing in the field of commercial franchising.