Franchise Agreement in Saudi Arabia: Key Clauses for Both Sides

You may agree with a well-known brand and then find that the contract does not say how many branches you may open or the limits on selling through delivery apps. The franchisor may grant the right to run one branch, while the investor understands that he has bought the right to expand across the whole city. The gap between expectations and written obligations can change the cost and options of the project, so protecting both sides starts with describing exactly what they agreed.

The direct answer: a franchise agreement in Saudi Arabia must be written in Arabic (or have a certified Arabic translation) and be signed by both parties. It must include the mandatory clauses set by Article 11 of the Franchise Law and Article 8 of its Implementing Regulations: the activity, term and territory; every fee and how it is calculated; training and support; supply; the trademark; dispute resolution; assignment and change of ownership; and termination, renewal and restrictions on competition. Where the contract is silent, the law's rules apply, including automatic renewal on similar terms if the franchisee sends notice at least 180 days in advance.

What must a franchise agreement in Saudi Arabia describe?

Article 11 of the Franchise Law requires the agreement to be written in Arabic and signed by both parties, or to have a certified Arabic translation if it is in another language. The required details include the activity, term, territory, fees, training, supply, intellectual property and dispute resolution.

In practice, state the parties' names and capacities, and attach a map of the territory and a list of products and services. Set when operation starts, and what happens if site approval is delayed or certain equipment cannot be obtained. These are negotiated details that should fit the project; they are not standard terms for every franchise.

The Implementing Regulations add clauses the agreement must contain: restrictions on transferring rights to others; the owner of the trademark and the franchisor's relationship with the owner if the franchisor is not the owner; both parties' rights to terminate and renew and their effects; any restrictions on competition during or after the agreement, without breaching the Competition Law; and obligations on the site, confidentiality and data protection (Article 8 of the Regulations).

Franchise fees: what are you actually paying?

It is not enough for the contract to say "a percentage of sales". Define the sales the percentage applies to: how are refunds, discounts and delivery orders treated? Which documents are used for the calculation? How are differences between the accounting system report and the sales platform report handled?

It helps to prepare a separate table for the initial fee and the training, marketing, technology and renewal fees. Write the due date of each payment and what it covers, and state which expenses need prior approval. The franchisee benefits from knowing his obligations, and the franchisor benefits from fewer disputes about what is due.

If the agreed royalty is 5% of sales of SAR 200,000, the result is SAR 10,000. But this does not decide how taxes and discounts are treated; that needs an express definition in the clause. The percentage is an assumption, not a fee set by law.

If there is a bank account to fund marketing to which franchisees in the Kingdom contribute, the franchisor must, unless the contract says otherwise, give them a report on how the money was spent within four months of the end of its financial year (Article 9 of the Regulations).

Operations manual and support: turn promises into procedures

Under Article 8, the franchisor's obligations include defining the business model, providing operating manuals, and giving training and know-how, unless the parties agree otherwise in writing. Article 9 sets the franchisee's obligations on approvals, data and allowing inspections without disrupting or harming his business, unless the parties agree otherwise in writing.

To control performance, identify the version of the operations manual, how it is delivered and how receipt is proved. Set a training plan, a way to request support, who must respond, and how updates are approved. The parties can negotiate how to deal with a major update that requires extra equipment or a redesign of the premises.

For supply, discuss alternatives when a key product is unavailable, how an alternative supplier is approved, and the quality specifications. Operational visits are best organised so that the franchisor can monitor the brand with minimal disruption to the branch. Keep records of training, support and observations; they help both sides see what was done and what is still outstanding.

Territory and exclusivity

Article 8 gives territorial protection against a similar business by the franchisor, or the grant of rights to others, in the agreed territory, unless there is a written agreement otherwise. The law does not allow the franchisor to terminate early without the franchisee's written consent except for a legitimate reason, under Article 18.

Discuss the limits of the territory for different sales channels, and the difference between a physical branch and sales through apps. A vague exclusivity clause is one of the most common causes of disputes, so draw the territory on a map and attach it to the contract.

Assignment, change of ownership and renewal

Unless the contract says otherwise, the franchisee needs the franchisor's approval before assigning the agreement or changing the person who controls the franchisee. But the franchisor may refuse only for specific reasons, such as the assignee not having enough financial resources, not meeting the franchisor's approved criteria, or unpaid fees (Article 13). If the franchisor does not reply in writing to the request, it is treated as having approved (Article 14), and it must give a reasoned refusal within 30 days (Article 11 of the Regulations).

For renewal, unless the contract says otherwise, the franchisee sends written notice at least 180 days before the end of the term. The agreement is then renewed for a similar period on similar terms, except in cases set out in Article 15, such as agreement on new terms, non-payment of fees due, or the franchisor no longer wishing to operate the business in the Kingdom.

A five-year franchise agreement ends on 1 March 2027 and has no renewal clause.

If the franchisee wants to continue, he must send written notice at least 180 days in advance, that is, before about the beginning of September 2026. The agreement is then renewed for five years on the same terms, unless one of the cases in Article 15 applies.

If he misses the deadline, he loses this legal protection and renewal becomes a matter for negotiation.

Article 11 also requires the agreement to set out the rights to use the trademark and intellectual property, the parties' obligations if they are breached, the dispute resolution method, and the rules on sub-franchising and change of ownership. So do not leave these matters to negotiation conversations alone.

Also arrange what happens to signs, stock, equipment and systems after the relationship ends. When the franchise ends, is assigned or is not renewed, the agreement to use the related trademark or trade name ends with it (Article 22).

This is general information based on the official Arabic texts of Saudi laws, which prevail over any translation. It is not legal advice for your specific case.

Practical solutions for both sides

If you are the franchisee:

• Compare the contract, clause by clause, with Article 11 of the Law and Article 8 of the Regulations before signing.
• Ask for an express definition of the sales on which the royalty is calculated.
• Draw the exclusive territory on a map and state how online sales are treated in it.
• Put the renewal notice date (180 days before the end) in your calendar from the day you sign.
• Keep records of training, support and supply; they are your evidence in any dispute.

If you are the franchisor:

• Write down your criteria for selecting franchisees and approving assignments in advance, because refusal is limited to specific reasons.
• Set mandatory purchases and their pricing method in the contract, not in later messages.
• Provide the marketing fund report on time, if there is one.
• Make termination reasons and notice and cure procedures clear, and agree on arbitration or mediation if you wish (Article 25).

One vague clause in a franchise agreement can cost years of dispute. Send us the draft contract on WhatsApp before signing, and we will review with you the mandatory clauses and the negotiation points on your side.