1 Relevant Legislation and Rules Governing Franchise Transactions
1.1 What is the legal definition of a franchise?
"Franchise" as standalone terminology is not defined in the internal regulations, as the concept of franchise does not have a separate legislative framework under UAE national law. However, under Federal Law No. 3/2022 (the "New Commercial Agencies Law"), a "Commercial Agency" is defined as the "Representation of the Principal by an Agent under an agreement of agency, distribution, sale, offer, franchise, or the provision of a commodity or service, within the State, in return for a commission or profit".
The definition under the New Commercial Agencies Law extends to "franchising", and the practice reveals this. In the past, many franchisees in the UAE opted to register themselves as commercial agents, so long as they fulfil the statutory criteria. The registry is organised and managed federally by the Ministry of Economy.
1.2 What laws regulate the offer and sale of franchises?
There is no standalone legislation that specifically regulates franchising in the UAE. Instead, franchising falls within the scope of different laws, such as the New Commercial Agencies Law (which was effective as of 15 June 2023), Commercial Transactions and Civil Transactions Law, trademarks and other intellectual property ("IP") regulations. Some of those applicable laws include the following:
- Federal Law No. 3/2022 on the Regulation of Commercial Agencies (the "New Commercial Agencies Law").
- Federal Law No. 5 of 1985 on Civil Transactions ("Civil Code"), amended by Federal Decree-Law No. 30/2020 dated 27/9/2020.
- Federal Decree-Law No. 50/2022 on the Promulgation of the Commercial Transactions Law ("Commercial Code").
- Federal Decree-Law No. 42/2022 on the Promulgation of the Civil Procedure Law.
- Federal Decree-Law No. 36/2021 ("Trademark Law").
- Federal Decree-Law No. 38/2021 on Copyrights and Neighbouring Rights.
- Federal Law No. 11 of 2021 on the Regulation and Protection of Industrial Property Rights (the "Industrial Property Law").
1.3 If a franchisor is proposing to appoint only one franchisee/licensee in your jurisdiction, will this person be treated as a "franchisee" for purposes of any franchise disclosure or registration laws?
There is no concept of a "franchisee" defined in UAE law, and no relevant disclosure or registration laws per se. Therefore, whether a licensee (or commercial agent) should be treated as a "franchisee" will only be relevant from a commercial perspective and under other situations, such as a registered user or licensee of trademarks, and this will have a different implication than those assumed in a franchise system in countries where franchise laws or systems exist. No registration of its rights or disclosure of the same is required in light of current regulations.
If a franchisee meets the requirements of a commercial agent, they can opt to register the franchise agreement with the Ministry of Economy and become a commercial agent of the Principal under the New Commercial Agencies Law. As per Article 7.1 of the New Commercial Agencies Law:
"The original Principal may appoint one Agent in the State as one area, and he may also appoint one Agent in each emirate, or in a number of emirates, provided that the distribution of the goods and services subject-matter of the Commercial Agency is limited to him within the Agency area."
This means that the agreement – to be considered as commercial agencies – must grant the agent/franchisee exclusivity to operate in a defined territory, and the agent/franchisee shall have exclusivity over the products or services in the defined territory. Further, the Principal may appoint a separate agent/franchisee for each Emirate provided the products or services according to the agreement are restricted to the specific agent/franchisee for each Emirate.
1.4 Are there any registration requirements relating to the franchise system?
There are no franchise registration requirements in the UAE. However, if the franchisee wished to register as a commercial agent, an application for registration in the commercial agent's registry will need to be submitted alongside a written and notarised contract (with Arabic translation), and legalised before the UAE diplomatic channel if it is executed outside the UAE.
The application shall be accompanied by supporting documents (commercial licence copy and copy of the Commercial Agency Contract that is notarised and certified by the official authorities), and shall include the name of the agent and Principal, the nationality and address of each, the assets, commodities and service relevant to the trade agency, the activity area of the agent and the commencement and expiry dates of the agent.
Trademark licences, within a franchise scope, can also be recorded at the UAE Trademark Office. Most franchise agreements include this authorisation of brand use, and parties opt to complete the recordal formalities. This helps to prove trademark use and entitles parties to claim some limited rights. However, no direct reference to franchise rights or recordal is required to be included.
1.5 Are there mandatory pre-sale disclosure obligations?
There are no applicable pre-sale disclosure obligations apart from what parties agree contractually.
1.6 Do pre-sale disclosure obligations apply to sales to sub-franchisees? Who is required to make the necessary disclosures?
There are no mandatory disclosure obligations applicable to sales to sub-franchisees apart from what parties agree contractually.
1.7 Is the format of disclosures prescribed by law or other regulation, and how often must disclosures be updated? Is there an obligation to make continuing disclosure to existing franchisees?
There are no disclosure obligations in the initial stages of the franchise relationship nor throughout the duration of the agreement apart from what parties agree contractually.
1.8 What are the consequences of not complying with mandatory pre-sale disclosure obligations?
No disclosures are required and, accordingly, there are no consequences. Parties, however, should fulfil what they agree contractually.
1.9 Are there any other requirements that must be met before a franchise may be offered or sold?
There are no specific statutory requirements that must be met by parties of a franchise, except for the general or relevant requirements for conducting business.
1.10 Is membership of any national franchise association mandatory or commercially advisable?
This is not applicable in the UAE as there are no official national franchise associations. Membership with local associations is also generally not mandatory.
1.11 Does membership of a national franchise association impose any additional obligations on franchisors?
This is not applicable in the UAE; please see the answer to question 1.10.
1.12 Is there a requirement for franchise documents or disclosure documents to be translated into the local language?
If the franchise agreement is to be registered with the Ministry of Economy, the agreement will need to be translated into Arabic along with the application form specifying the terms of the relationship.
In the case of any governmental dealings or courts, a properly legal translation of any relevant documents into Arabic will be required in order to be considered.
2 Business Organisations Through Which a Franchised Business Can be Carried On
2.1 Are there any foreign investment laws that impose restrictions on non-nationals in respect of the ownership or control of a business in your jurisdiction?
Until 1 June 2021, the UAE Commercial Companies Law required a UAE national to own at least 51% of the shares in the capital of onshore companies in the UAE. However, following the introduction of Federal Decree-Law No. 26 of 2020, this requirement was removed from Article 10, permitting 100% foreign ownership for dozens of commercial activities, subject to some restrictions.
The activities that are excluded from 100% foreign ownership include, but are not limited to, commercial agencies activities and strategic activities such as banking, insurance and telecommunications and others.
That said, under the New Commercial Agencies Law, it remains that commercial agency activities can only be carried out by one of the following:
- A UAE National.
- A UAE Public Joint-Stock company ("PJSC") owned at least 51% by UAE nationals.
- A UAE private entity owned by a PJSC meeting the above requirements.
- A UAE private entity that is 100% owned by UAE nationals.
Further, the New Commercial Agencies Law permits international companies/foreign Principal to act as agents in selling their own products directly in the UAE – even if not owned in whole or in part to UAE nationals – provided that (1) there is no agent already appointed for the products in the UAE, and (2) the commercial agency must be new and not subject of any existing registered agency in the UAE. However, and in order to be registered as commercial agent, international company/foreign Principal must obtain the UAE Cabinet's permit, acting under the recommendation of the Minister of Economy.
For those companies incorporated in a free zone, they continue to be capable of having a 100% foreign ownership according to the applicable regulations and requirements.
2.2 What forms of business entity are typically used by franchisors?
The most common form of business entity used by franchisors in the UAE is a limited liability company. There are many cases of franchisors entering into joint ventures with a locally-based entity in order to gain easy access and insight into the local market, and in order to have control of the use of the know-how that will be transferred to the franchisee; however, such joint venture structures are uncommon and are also selected by parties commercialising the luxury goods sector. In addition, foreign franchisors are generally reluctant to fully participate in joint ventures through capital investment to exploit franchise rights.
2.3 Are there any registration requirements or other formalities applicable to a new business entity as a pre-condition to being able to trade in your jurisdiction?
All business entities are required to obtain and issue a commercial licence in the UAE whereby they will be licensed to trade or provide services for designated activities as intended under the entity.
3 Competition Law
3.1 Provide an overview of the competition laws that apply to the offer and sale of franchises.
The main Federal laws and regulations governing competition in the UAE are as follows:
- The Federal Law No. 4 of 2012 on the Regulation of Competition ("UAE Competition Law").
- Cabinet Resolution No. 37 of 2014 concerning the Implementing Regulation of the UAE Competition Law ("Implementing Regulation").
- Cabinet Resolution No. 13 of 2016 ("Ratio Decision"), which provides the ratios and controls related to the application of the UAE Competition Law.
- Cabinet Resolution No. 22 of 2016 ("SME Decision") in respect of small and medium projects and enterprises.
The UAE Competition Law applies to activities carried out by entities in the UAE and the exploitation of IP rights inside the UAE or abroad and, further, the law applies to activities that are practised abroad but affect competition in the UAE.
The main aim of the UAE Competition Law and Implementing Regulation is to protect and promote competition and anti-monopoly practices through maintaining a competitive market governed by market mechanisms, in accordance with the principle of economic freedom, by regulating the following areas:
1. Restrictive Agreements:
The UAE Competition Law and Implementing Regulation prohibit the restrictive agreements that restrict and prevent competition in the relevant market. Therefore, and when drafting the franchise agreement, the parties must ensure that the provisions of the agreement are not in breach of the UAE Competition Law and Implementing Regulation, noting that the agreements that include the following provisions are prohibited:
- Agreements that specify directly or indirectly the purchase or sale prices of goods or services.
- Agreements that freeze or limit production, development, distribution, marketing and other investment aspects.
- Agreements that restrict the freedom of supply of goods or services in the relevant market.
- Agreements that collude in refusing to deal with certain entities or limiting the sale or supply to certain organisations, etc.
The prohibitions stipulated under the UAE Competition Law and Implementing Regulation exclude "low-impact restrictive agreements" in which the total share of the parties to the agreements does not exceed 10% of the total transactions in the relevant market.
Further, franchise agreements that are registered as "commercial agencies" under the Commercial Agencies Law are expressly exempted from the application of the UAE Competition Law and Implementing Regulation. The Competition Law expressly states that certain restrictions cannot be included in agreements except to the extent they are included under the Commercial Agencies Law, such as the following:
- Agreements that are aimed at market sharing or allocation of clients on the basis of geographical areas, distribution centres, customer quality, seasons, periods of time or any other basis that affects competition.
- Agreements that are taking any measures to hinder the entry of other entities into the market.
2. Abuse of Dominant Position:
The UAE Competition Law and Regulation prohibits companies with a dominant position in the relevant market, or in a substantial or influential part thereof, from carrying out any acts or actions that lead to the abuse of the position to prejudice, restrict or prevent competition. Therefore, while having a dominant position is not in itself prohibited under the UAE Competition Law, using a dominant position for anti-competitive purposes is prohibited, such as in the following cases:
- Imposing – whether directly or indirectly – prices or conditions for resale of goods or services.
- Selling goods or services at below cost price with the aim of hindering the entry of competitive entities to the market.
- Forcing customers not to deal with a competitive entity as well as unjustified discrimination of customers of identical contracts in terms of prices of goods or services or the terms of sale or purchase of contracts.
- Disseminating false information about the products or services and their prices and other activities.
However, the UAE Competition Law provides that a certain minimum threshold must be met, which is calculated by reference to the total market share of the parties to the agreement and whether the same exceeds a percentage specified by the UAE Cabinet.
3.2 Is there a maximum permitted term for a franchise agreement?
There is no maximum permitted term; however, the New Commercial Agencies Law has provided for a minimum contract term of five years if the agent/franchisee is required under the contract to establish showrooms, buildings, commodity stores or maintenance/repair facilities, unless agreed otherwise between the parties.
3.3 Is there a maximum permitted term for any related product supply agreement?
There is no maximum permitted term prescribed by law for any related product supply agreement.
3.4 Are there restrictions on the ability of the franchisor to impose minimum resale prices?
Generally, there are no restrictions imposed on the ability of the franchisor to impose a minimum resale price in order to comply with the franchise standards. The main concern would be the competition law and whether the local entity, i.e. franchisor or franchisee, is considered a dominant entity as defined under the UAE Competition Law, as in such case such act would potentially be an issue that is considered as price-fixing by a dominant entity and, accordingly, would be subject to the sanctions stipulated under the UAE Competition Law.
In light of this, the franchisor shall be able to set the prices for the products or services, subject to the franchise agreements, as long as the franchisor and/or franchisee are not in a dominant position. The nature of product/service can trigger the Competition Law issue and potentially be a factor, i.e. whether the product is substantial, a luxury, or pertains to consumers' direct needs.
3.5 Encroachment – are there any minimum obligations that a franchisor must observe when offering franchises in adjoining territories?
There are no laws or regulations that govern competing franchisees that are granted franchise in neighbouring territories (encroachment). However, the main principle under the applicable UAE laws is that contractual matters are subject to the agreement of the parties, which will be enforceable to the extent that it does not violate UAE public policy or morality. Further, the UAE Civil Code provides that all contracts must be performed in a manner consistent with the requirements of good faith, accepted industry practice and honourable dealings.
Therefore, and as the franchise rights can be granted to franchisees on an exclusive and non-exclusive basis, the franchisor shall be clear regarding the territory or geographical limits granted to each franchisee when drafting the franchise agreement. The non-exclusive franchise agreement shall include sufficient provisions that expressly state that the franchisor will reserve the right to grant franchises to third parties within the territory in order to mitigate any risks in this regard, while the exclusive franchise agreement shall include provisions that expressly state that the franchisor will reserve the rights to grant franchises to third parties outside the exclusive territory or even to grant franchises for similar concepts that do not incorporate the licensed or franchised IP rights within the exclusive territory.
As for the exclusive franchise agreements that are registered as a commercial agency agreement with the Ministry of Economy under the UAE Federal Law No. 187 of 1981, the same grants exclusivity to the franchisee in relation to the franchised territory (whether in respect of one Emirate or number of Emirates or the entire UAE).
The franchisee that is recorded as a commercial agent will be able to prevent third parties – including the franchisor – from importing any commodity, product, material or any other merchandise that is the subject matter of a franchise agreement registered at the Ministry of Economy within the scope of the franchised territory.
3.6 Are in-term and post-term non-compete and non-solicitation of customers covenants enforceable?
Non-compete and non-solicitation clauses during the term and post termination are legally enforceable under UAE law but, in practice, they face serious practical challenges to prove and pursue, including remedies and claimed compensation.
Provided such clauses are reasonably drafted and included, they can be enforced. In practice, generally, the courts in the UAE take into consideration the following factors when determining the reasonableness of a non-compete or non-solicitation restrictions:
- Duration of the restriction: The period of non-compete and non-solicitation clauses will be subject to challenge in case the same are considered too long by the court.
- Geographical scope of the restriction: The geographical scope of non-compete and non-solicitation clauses will be subject to challenge in case the same are considered too large by the court.
- Position and status of the person or entity against whom the restrictions are imposed, as well as the restricted activities.
Therefore, non-compete and non-solicitation clauses, in which the franchisees agree not to be involved in any similar or competing business and not to solicit any employees from the franchised business, are enforceable in the UAE, provided they are reasonable in respect of the period, the geographical area and the activity restricted.
As for the franchisor's know-how, it is possible to include standard indefinite restrictions or clauses on using any of the franchisor's know-how in any other similar or competing business.
4 Protecting the Brand and Other Intellectual Property
4.1 How are trade marks protected?
In the UAE, trademarks are protected under the Trademark Law and may be registered before the UAE Trademark Office.
A trademark registration lasts for a duration of 10 years from the date of application and can be renewed for further periods of 10 years.
In terms of process, an application must be made to the Trademark Office (in Arabic). The officials will then examine the trademark on both absolute and relative grounds, as per the prescribed conditions in Articles 2 and 3 of the Trademark Law.
Providing no objections are made, the trademark will be published in the Official Gazette and two local newspapers for a period of 30 days. If no opposition is lodged by a concerned third party within the requisite time period, the trademark will be eligible for registration, which will be secured upon payment of the associated fee.
The owner of a registered trademark maintains the exclusive right to use its trademark and may bring action against any party which uses the trademark without its consent.
4.2 Are know-how, trade secrets and other business-critical confidential information (e.g. the Operations Manual) protected by local law?
The UAE is party to the TRIPS Agreement and, accordingly, the concept of trade secrets and confidential information is provided for in the UAE Federal laws under several different provisions. Under the Penal Code, it is a criminal offence for an individual who "... by virtue of his profession, craft, position or art is entrusted with a secret and divulges it in cases other than those allowed by law or if used for his own personal interest or for the interest of another person, unless authorized by the confiding person to disclose or use it".
Under the Civil Transactions Law, employees must "safeguard the industrial or commercial secrets of their work, even after the expiration of the contract, as required by the agreement or customarily practiced".
The labour regulations give some protection for trade secrets; for instance, the employer's right to take disciplinary measures if the employee "divulges any of the secrets of the establishment where he works".
The UAE Companies Law that came into force on 1 July 2015 contains a provision in Article 369 titled "Disclosure of company secrets", which penalises the following:
- "Anyone who takes advantage of data or information that he obtained from the incorporation committee at any stage of incorporation of the company and who is a legal or financial consultant or a subscription director or covering sponsor or the parties participating in the incorporation procedures or any of their representatives.
- the chairman, a board member or an employee who uses or discloses a company secret or intentionally tries to damage the company's activity."
Further, the Industrial Property Law – which apply to patents, industrial designs, integrated circuits, utility certificates and undisclosed information – recognises the right of confidentiality in relation to undisclosed information and/or know-how. The confidential information will be protected as long as they meet the requirements to be considered confidential information. The Law's requirements to provide protection to confidential information are:
- the information shall be confidential and not known or circulated generally to those engaged in the industrial art within whose scope the information falls;
- the information has business value and such value is derived from being a secret; and
- the information has been the subject of reasonable measures by its holder to keep it secret.
The Industrial Property Law requires that steps are taken to preserve the secrecy of that undisclosed information. In accordance with the provisions of Chapter 6 of the Law and Article (71) of the Cabinet Decision No. 6 of 2022 on the Implementing Regulations of the Industrial Property Law, the party asserting confidentiality must demonstrate that positive steps have been taken to keep the information confidential and that the nature of the information as such was communicated.
Also, Article 71 of the Implementing Regulation contains detailed measures to be taken by the legal owner of undisclosed information to maintain the confidentiality of undisclosed information, including but not limited to:
- Keeping documents or any other items containing undisclosed information in a way that ensures that they are not viewed by others without permission and managing the workplace so that employees do not view such undisclosed information.
- Preventing third parties from visiting the workplace, except with the prior permission of the owner and in his personal presence or his authorised representative.
- Prohibiting any programme that would allow the visitor to view undisclosed information.
- Ensuring that any type of agreement concluded with employees or third parties – which may allow the employees or third parties to view some elements of the undisclosed information – includes provisions and clauses that impose on the employees or third parties not to disclose any element of undisclosed information obtained during the term of the agreement, and not to use or exploit the information for their benefit or the interest of any third party, either directly or indirectly, during the term of the agreement or after its termination for any reason, without the prior permission of the owner of the undisclosed information.
Therefore, it is the best practice to include obligations relating to trade secrets and confidential information in any franchise agreement that sets out the circumstances of the disclosure of confidential information.
If the concerned contract is governed under the laws of the DIFC free zone, the relevant provisions can be found in the DIFC IP Law, which was implemented in 2020. This defines the concept of a trade secret as "all forms and types of financial, business, scientific, technical, economic or engineering information, including patterns, plans, compilations, programs, devices, formulas, designs, prototypes, methods, techniques, processes, procedures, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialised physically, electronically, graphically, photographically, or in writing". However, it must meet the following requirements:
- "the information involved constitutes a trade secret, or part thereof;
- the information derives actual or potential economic value from not being generally known to other persons who may obtain economic value from its disclosure or use; and
- the person lawfully in control of the information has taken reasonable measures to keep the information a secret."
4.3 Is copyright (in the Operations Manual or in proprietary software developed by the franchisor and licensed to the franchisee under the franchise agreement) protected by local law?
Yes, copyright protection in the UAE is applicable to any original work in the areas of literature, arts or science, whatever its description, mode of expression, significance or purpose of creation. The copyrighted work includes: smart applications; computer programs and applications; databases; and similar works. This is provided for under Federal Decree-Law No. 38/2021 On Copyrights and Neighbouring Rights. The UAE is also a signatory to several copyright treaties, such as the Berne Convention, WTO TRIPS Agreement, WIPO Copyright Treaty and the Rome Convention.
Although registration is not necessary to obtain rights and copyright protection, it is advisable to register or deposit works that are important to the company before the Copyright Department at the Ministry of Economy, in order to generate evidence of the existence of such copyrighted work.
5 Liability
5.1 What remedies can be enforced against a franchisor for failing to comply with mandatory disclosure obligations? Is a franchisee entitled to rescind the franchise agreement and/or claim damages?
There are no mandatory disclosure obligations under the applicable UAE laws. However, and if such disclosure is agreed between the parties in the franchise agreement, then the franchisee may have the right to terminate the agreement or claim for damages if the provisions of the agreement grant the franchisee such rights.
5.2 In the case of sub-franchising, how is liability for disclosure non-compliance or for pre-contractual misrepresentation allocated between franchisor and master franchisee? If the franchisor takes an indemnity from the master franchisee in the Master Franchise Agreement, are there any limitations on such an indemnity being enforceable against the master franchisee?
Any liability for misrepresentation under the sub-franchise agreement that is made between the master franchisee and sub-franchisee would rest with the master franchisee, as the parties must have a contractual relationship to bring a claim of misrepresentation in the UAE. The franchisor or its officers and directors will not be liable for a breach by the master franchisee of its obligations.
In general, the provisions in a franchise agreement that provide for indemnification of a party against liability arising in a contract are enforceable under UAE law, provided that the losses are not the result of the fraud, wilful default or gross fault or negligence of the party seeking to be indemnified. Therefore, the parties of the franchise agreement may include any indemnity clauses; however, if the master franchise agreement between the franchisor and master franchisee contains a wide obligation for the latter to indemnify the franchisor for all the master franchisee's acts or omissions, the courts would have the right to assess, revise and, at their, sole discretion decide to hold or strike out the indemnity provision for being "unreasonable" in case the acts or omissions are caused by the franchisor's own negligence.
5.3 Can a franchisor successfully avoid liability for pre-contractual misrepresentation by including a disclaimer in the franchise agreement?
It is best practice to include entire agreement and non-reliance clauses to prevent either party from bringing a misrepresentation action, and disclaimers of this nature would generally be sufficient to avoid civil liability. However, disclaimers do not always continue to exempt the parties from liabilities and courts will carefully assess the enforceability of pre-contractual liability based on the facts, contractual terms and parties' expectation of liabilities. In addition, third parties will not be automatically restricted from pursuing their rights against franchise parties because of having such disclaimers.
5.4 Does local law permit class actions to be brought by a number of aggrieved franchisees and, if so, are class action waiver clauses enforceable?
The applicable UAE laws do not legislate for class-action lawsuits; however, in practice, a group of claimants may collectively commence legal proceedings against one or a number of defendants in some cases. The courts will review the opening statement claims carefully and, if the cause of action is unified among all claimants, the case could be approved. In particular, the class action may work in claims where various claimants suffered harm as a result of the acts of one or a number of defendants, but may be difficult to pursue in cases related to franchise.
6 Governing Law
6.1 Is there a requirement for franchise documents to be governed by local law? If not, is there any generally accepted norm relating to choice of governing law, if it is not local law?
There is no requirement for franchise documents to be governed by local law, and generally the parties to any agreement are free to choose the governing law and forum within the contract. However, if the franchise agreement is registered with the Ministry of Economy at the Commercial Agencies Department, it will be subject to UAE internal laws, such as the New Commercial Agencies Law.
Under the Old Commercial Agencies Law, the Commercial Agencies Committee ("Committee") had exclusive jurisdiction to hear any dispute between the parties, and the UAE courts had exclusive jurisdiction to hear and determine any appeals over the Committee's decisions.
The New Commercial Agencies Law confirms the exclusive jurisdiction of the Committee to hear any dispute that arise between the parties in the first instance. However, the New Commercial Agencies Law has allowed the parties for the first time to agree to refer any dispute to arbitration in relation to a registered commercial agency agreement, after the issuance of a decision from the Committee, meaning that the parties shall – at the first instance – refer any dispute to the Committee, but thereafter refer the dispute to arbitration as a next step, in which case the Committee's decision will neither be binding on the parties nor the arbitrators.
The default seat for arbitration is the UAE, unless otherwise agreed between the parties. However, the arbitration clause will not apply to a commercial agency in relation to a dispute that has arisen or is already being heard by a UAE court before the publication of the New Commercial Agencies Law (15 December 2022).
6.2 Do the local courts provide a remedy, or will they enforce orders granted by other countries' courts, for interlocutory relief (injunction) against a franchisee to prevent damage to the brand or misuse of business-critical confidential information?
The UAE courts may enforce orders granted by other courts if the foreign judgments fulfil the conditions stipulated in UAE laws and/or treaties. The foreign judgments can be enforced in the UAE either:
- under a bilateral treaty signed between the UAE and a foreign country;
- under the provisions of the Executive Regulations of the Civil Procedure Law No. 11 for the year 1992 as amended in 2018; or
- through the DIFC or ADGM courts.
6.3 Is arbitration recognised as a viable means of dispute resolution and is your country a signatory to the New York Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards? Do businesses that accept arbitration as a form of dispute resolution procedure generally favour any particular set of arbitral rules?
Yes, arbitration is readily available and widely used in the UAE as a form of dispute resolution. The UAE is a signatory to the New York Arbitration Convention. The arbitration award will be enforceable, provided the same is issued in accordance with the UAE arbitration regulations and also covers matters that can be referred to arbitration.
As mentioned at question 6.1 above, arbitration is specifically mentioned in the New Commercial Agencies Law as a dispute resolution mechanism. In fact, Article 26.1 states:
"The provisions of this Law shall not prejudice any agreement between the Agent and the Principal to refer any dispute arising between them to arbitration."
7 Real Estate
7.1 Generally speaking, is there a typical length of term for a commercial property lease?
This is generally a minimum of a year, with most commercial leases being either three or five years.
7.2 Is the concept of an option/conditional lease assignment over the lease (under which a franchisor has the right to step into the franchisee/tenant's shoes under the lease, or direct that a third party (often a replacement franchisee) may do so upon the failure of the original tenant or the termination of the franchise agreement) understood and enforceable?
Whilst it is possible to include a term of this nature into the franchise agreement, the tenant (franchisee) would need to have express permission from the landlord in order to assign the lease to another party. If this was not obtained beforehand, any assignment would fail unless the landlord approves the same when such right is exercised.
7.3 Are there any restrictions on non-national entities holding any interest in real estate, or being able to sub-lease property?
There are no legal restrictions that prohibit a non-national to lease or sub-lease a property due to the nationality. However, non-nationals may own property only in certain allowable territories in the UAE, namely called "freeholds".
7.4 Give a general overview of the commercial real estate market. To what extent has the real estate market been affected by the Coronavirus pandemic? Specifically, can a tenant expect to secure an initial rent free period when entering into a new lease (and if so, for how long, generally), or are landlords demanding "key money" (a premium for a lease in a flagship location)?
The COVID-19 pandemic initially led to a temporary reduction in rental prices for commercial properties in 2020 and 2021, with many landlords becoming more flexible in respect of payment terms and the requirement for post-dated cheques, permitting bank transfers instead. The parties entered into amicable negotiations to review their commercial contracts, and a large number of deals were resolved without escalation to disputes. This assured confidence in the market by foreign investors, and demonstrated the flexibility and dynamic of the UAE market in dealing with global crisis.
Since COVID-19, the UAE real estate market has had a dramatic recovery, and even hit a "record high" according to a report published by CBRE in early 2023. In respect of the Commercial Real Estate market, particularly, reports indicate that there was significant growth throughout 2022 with demand for offices, retail and warehouses. The growing demand has led to shortages of available office space in particular prime areas, which has in turn drove up both the purchase and rental markets.
Some landlords were willing to provide rent-free periods when entering into a new lease, but the availability of this can depend on the area and the relevant level of demand. Given the significant increase in demand generally, this is likely to be confined to "up and coming" areas. Key money is not usually demanded by landlords.
8 Online Trading
8.1 If an online order for products or request for services is received from a potential customer located outside the franchisee's exclusive territory, can the franchise agreement impose a binding requirement for the request to be re-directed to the franchisee for the territory from which the sales request originated?
Yes, the franchise agreement can impose a binding requirement for the request to be re-directed.
8.2 Are there any limitations on a franchisor being able to require a former franchisee to assign local domain names to the franchisor on the termination or expiry of the franchise agreement?
There are no formal limitations. However, if the domain name is inclusive of the trademark of the franchisor, the franchisor will be able to claim that the domain name is their property and accordingly should be transferred. It is best practice to include provisions relating to any domain names within the franchise agreement.
9 Termination
9.1 Are there any mandatory local laws that might override the termination rights one might typically expect to see in a franchise agreement?
Generally, the provisions on the termination that are set under the franchise agreement shall apply. However, if the franchisee is registered as a commercial agent, the contract may only be terminated for the following reasons:
- Expiry of the contract term, unless said term is renewed by agreement of the contracting parties.
- By the will of either the Principal or the Agent based on the terms and conditions of the Commercial Agency Contract.
- By agreement of the contracting parties before the end of the contract term (early termination).
- Issuance of a final court judgment terminating the Commercial Agency.
- Any other case mentioned in the New Commercial Agencies Law.
The implementation of the above termination provision gives parties an enhanced flexibility in agreeing and supervising agency contracts.
The New Commercial Agencies Law also provides for statutory notice periods for early termination or non-renewal of a contract upon expiry. As per the law, unless the parties have specifically agreed otherwise, the terminating party will be required to provide notice to the other party either one year before the date of expiry/termination, or before the lapse of half of the contract term, whichever is less.
It should be noted that the New Commercial Agencies Law (and the changes to termination procedures) will not immediately apply to all existing commercial agency relationships. Instead, Article 30 of the New Commercial Agencies Law sets out transitional implementation periods.
Parties in existing commercial agencies will not benefit from the changes to the termination and/or non-renewal provisions, which will not apply to existing relationships, except:
- after the lapse of two years after the New Commercial Agencies Law is in force (15 June 2025); or
- after the lapse of 10 years after the New Commercial Agencies Law is in force (15 June 2025, in the case of commercial agencies which have been registered for more than 10 years with an agent, or where the agent has invested more than AED 100,000,000 into the commercial agency.
Instead, the position of the old law will be applicable, wherein a contract could only be terminated for "fundamental or material reasons". This was generally interpreted narrowly by the local courts and was often considered a deterrent in engaging in commercial agency in the UAE. This was viewed by some as a mechanism which prevented international parties from enforcing termination procedures and holding their local agents accountable for agreed performance targets and objectives.
9.2 Are there local rules that impose a minimum notice period that must be given to bring a business relationship that has existed for a number of years to an end, which will apply irrespective of the length of the notice period set out in the franchise agreement?
There are no local laws that impose a minimum notice period in the UAE for commercial contracts or franchise agreements. However, under the New Commercial Agencies Law, a statutory notice period has been implemented (mentioned at question 9.1 above).
10 Joint Employer Risk and Vicarious Liability
10.1 Is there a risk that a franchisor may be regarded as a joint employer with the franchisee in respect of the franchisee's employees? If so, can anything be done to mitigate this risk?
No, UAE employment law requires all employees to be sponsored by a legal entity in the UAE for work and residency purposes. It would not be possible to suggest that an employee of a franchisee be regarded as an employee of the franchisor, unless the franchisor was based in the UAE and the franchisor sponsored the employees. Nevertheless, it is recommended to disclaim any relationship of partnership, employment or agency within the agreement in order to mitigate any risk.
In 2021, the UAE in 2021 introduced a new employment law (i.e. Law No. 33/2021) that offered and proposed new types of employment contracts, such as part-time, temporary and/or flexible contracts, which can be explored by the appointed staff or teams in franchise transactions.
10.2 Is there a risk that a franchisor may be held to be vicariously liable for the acts or omissions of a franchisee's employees in the performance of the franchisee's franchised business? If so, can anything be done to mitigate this risk?
Generally, the franchisor will not be held liable for the acts or omissions of the franchisee's employees unless the franchisor has contributed to or validated such acts, or caused any omissions or misconduct due to its direct control over the franchisee's employees and works, including the day-to-day operations, or due to common ownership of the franchisor and franchisee.
11 Currency Controls and Taxation
11.1 Are there any restrictions (for example exchange control restrictions) on the payment of royalties to an overseas franchisor?
There are no restrictions of this kind in the UAE.
11.2 Are there any mandatory withholding tax requirements applicable to the payment of royalties under a trade mark licence or in respect of the transfer of technology? Can any withholding tax be avoided by structuring payments due from the franchisee to the franchisor as a management services fee rather than a royalty for the use of a trade mark or technology?
No, this is not applicable within the UAE.
11.3 Are there any requirements for financial transactions, including the payment of franchise fees or royalties, to be conducted in local currency?
There are no such requirements in the UAE.
12 Commercial Agency
12.1 Is there a risk that a franchisee might be treated as the franchisor's commercial agent? If so, is there anything that can be done to help mitigate this risk?
Yes, there is a risk, especially if the franchise agreement is registered with the Ministry of Economy or, explicitly or implicitly, allows such registration for the franchisee.
It is important to set out the rights of the franchisee within the franchise agreement, and specifically mention whether the franchisee is a commercial agent or not, and determine whether it can or cannot be registered thereof. A disclaimer to this effect being included within the agreement is recommended. Parties are strongly advised to obtain a proper consultation from local counsel who is an expert in this area.
13 Good Faith and Fair Dealings
13.1 Is there any overriding requirement for a franchisor to deal with a franchisee in good faith and to act fairly in its dealings with franchisees according to some objective test of fairness and reasonableness?
Yes, a duty to act in good faith is implied into any agreement that is subject to UAE law. As per Article 246 of the UAE Civil Code, "a contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith".
13.2 Is there any limitation on a good faith obligation being unenforceable if it only applies from franchisee to franchisor, rather than being mutual?
The obligation to act in good faith applies to all contracts and is an obligation on both contracting parties, irrespective of the terms in the agreement.
14 Ongoing Relationship Issues
14.1 Are there any specific laws regulating the relationship between franchisor and franchisee once the franchise agreement has been entered into?
No, there are no specific laws that regulate the franchise relationship once the franchise agreement comes into effect. However, the parties shall not contravene any of the general principles of law in relation to the ongoing dealings between them.
Further, there are specific policies and regulations established for certain industries and certain categories of products or services and, therefore, the parties shall ensure the requirements imposed for the industry subject of the franchise business, such as the franchises related to educational institutions or pharmacies, etc. are established.
15 Franchise Renewal
15.1 What disclosure obligations apply in relation to a renewal of an existing franchise at the end of the franchise agreement term?
No disclosure obligations are specified by the applicable laws in the UAE.
When franchise rights are covered in trademark licence agreements, the recordal of licence agreements are published in the Official Gazette.
15.2 Is there any overriding right for a franchisee to be automatically entitled to a renewal or extension of the franchise agreement at the end of the initial term irrespective of the wishes of the franchisor not to renew or extend?
There are no mandatory imposed rights in relation to automatic renewals of the franchise agreement at the end of the initial or subsequent term. However, and in case the franchise agreement is recorded as a commercial agency under the Old Commercial Agencies Law, the franchisor will be liable for compensation if non-renewal occurs by the franchisor's decision without a legitimate cause, even if the franchise agreement term is fixed.
The position has changed under the New Commercial Agencies Law, wherein the franchisor (or Principal) is able to terminate the relationship for several reasons (detailed at question 9.1), and this explicitly includes "the expiry of a limited term of agency contract".
15.3 Is a franchisee that is refused a renewal or extension of its franchise agreement entitled to any compensation or damages as a result of the non-renewal or refusal to extend?
No, the franchisor and franchisee are free to agree the terms of the franchise agreement, and no compensation or damages will be payable unless the contract provided for this.
However, and in case the franchise agreement is recorded as a commercial agency agreement (before 15 June 2023), under the Old Commercial Agencies Law, the franchisee will be entitled to compensation on failure to renew an agreement, even if the non-renewal is made in accordance with the terms of the franchise agreement. The amount of the compensation is decided on a case-by-case basis; however, the courts in the UAE take into account different factors when determining the amount of compensation, such as the duration of the franchise agreement, the net profit generated by the franchisee and its efforts in promoting the franchisor, as well as the targets reached by the franchisee in accordance with the terms of the franchise agreement.
As Article 30 of the New Commercial Agencies Law provides a transition period for existing commercial agency contracts, the above would still apply for existing agency relationships, and compensation is likely to be due.
The New Commercial Agencies Law provides, also, for the right to claim for compensation for any damages suffered as a result of non-renewal or termination of the agency contract as follows:
- Expiration of any agency contract (non-renewal) by way of a legal notice being issued by either of the parties: The agent may claim from the Principal compensation for the damages it has suffered as a result of non-renewal of the contract, unless the contract expressly stipulates otherwise (Article 11/1).
- Termination of the contract term by the will of either of the parties based on the terms and conditions of the contract: The affected party can claim from the other party compensation for damages it has suffered (Article 11/2).
3. Termination of the contract term by the will of either of the parties based on the terms and conditions of the contract: The agent can challenge the termination before the Commercial Agencies Committee in addition to claiming compensation for damages it has suffered if the agent proves that its efforts have contributed to the success of the products and have led to the increase of customers or clients for such products, as well as have led to the loss of profit as a result of the termination (Article 11/2).
The New Commercial Agencies Law does not provide any clarification or criteria for the assessment of such compensation.
16 Franchise Migration
16.1 Is a franchisor entitled to impose restrictions on a franchisee's freedom to sell, transfer, assign or otherwise dispose of the franchised business?
Yes, this can be set out in the franchise agreement and the same should be enforceable.
16.2 If a franchisee is in breach and the franchise agreement is terminated by the franchisor, will a "step-in" right in the franchise agreement (whereby the franchisor may take over the ownership and management of the franchised business) be recognised by local law, and are there any registration requirements or other formalities that must be complied with to ensure that such a right will be enforceable?
A step-in clause in the franchise agreement will be recognised; however, there may be limitations on the enforceability in respect of the franchisee's own contracts with third parties, such as the landlord of the franchisee's premises.
With respect to assets related to franchised business, the New Commercial Agencies Law introduced new provisions that oblige the agent to transfer to the Principal or the new agent any assets (such as commodities, merchandise, materials, spare parts, machinery and others) which are held by the agent at the date of termination, and which are subject to the Commercial Agency Contract in return of a fair value, provided that there are no restrictions on the transfer of the ownership of the assets at the time of the termination of the contract, unless otherwise agreed between the parties (Article 9/2).
16.3 If the franchise agreement contains a power of attorney in favour of the franchisor under which it may complete all necessary formalities required to complete a franchise migration under pre-emption or "step-in" rights, will such a power of attorney be recognised by the courts in the jurisdiction and be treated as valid? Are there any registration or other formalities that must be complied with to ensure that such a power of attorney will be valid and effective?
In order to use a Power of Attorney ("POA") in the UAE, it must be executed in the presence of a notary and legalised at the UAE embassy in the country of execution. Once it reaches the UAE, it will require local authentication before it can be relied upon.
For a POA from a UAE-based entity, only execution in the presence of a notary is required.
As a POA lacks certain formalities, it may be considered "useless" and cannot be presented or used before third parties and/or governmental authorities.
17 Electronic Signatures and Document Retention
17.1 Are there any specific requirements for applying an electronic signature to a franchise agreement (rather than physically signing a "wet ink" version of the agreement), and are electronic signatures recognised as a valid way of creating a binding and enforceable agreement?
There are no specific requirements in respect of using electronic signatures and the UAE recognises electronic signatures as a valid form of signature, which are increasingly used in cross-border transactions. Whilst an electronically signed document will still form a binding and enforceable agreement, one practice is to execute the document in the presence of a notary in the UAE. As mentioned, if the franchise agreement is to be registered with the Ministry of Economy, it will require notarisation.
However, we are aware that the vast majority of franchise agreements are simply signed and exchanged in emails or e-communications.
17.2 If a signed/executed franchise agreement is stored electronically (either having been signed using e-signatures or a "wet ink" version having been scanned and saved as an electronic file), can the paper version of the agreement be destroyed?
No, in the UAE it is common for the court to request the original contract and/or supporting documents as evidence of the agreements, signed using wet ink. Failure to provide the originals may not be sufficient to convince the courts a valid agreement exists unless parties can show the signature of agreements in electronic means.
As for the agreements signed using e-signatures, the parties would be required to present copies of the emails exchanged by them containing the e-signed agreement in order to prove that the parties confirm the agreement.
18 Current Developments
18.1 What is the biggest challenge franchising is facing in your jurisdiction and how are franchisors responding to that challenge?
The UAE is considered a mature franchise market where franchising is common and has been used for several years as a method for business growth. However, foreign franchisors may still face certain challenges with their expansion to the UAE, such as the following:
1. Finding the right franchisee
Finding the right candidate is one of the main challenges, since most franchisors tend to contract with franchisees who meet financial requirements, while the right approach is to consider franchisees that (1) have good management skills, (2) understand the market situation, and (3) work hard and adopt the latest technology, taking into account that the right franchisee is vital for the success of the franchised business and failure to find the proper franchisee would negatively affect the brand image, as well as the customers' perception of the franchisor's company.
2. Inflation
The current worldwide inflation arising from different crises and wars may impact the profitability of the franchised business, and consequently may lead to the early termination of the franchise agreements.
3. Termination of franchise agreements registered as commercial agency
The termination of a registered franchisee in the UAE commercial agencies registrar is another challenge, irrespective of the terms of the franchise agreement. Although the New Commercial Agencies Law provides some relief to parties, there are still many challenges, particularly for those involved in existing commercial agency relationships who will not immediately benefit from any changes.
4. The registration of the franchisor's brand as a trade name by the franchisee
A further practical challenge for franchisors is that the franchisee is likely to register a trade name in the UAE, and this may include the name or trademark of the business. Having this trade name revoked once the relationship has dissolved can present a further challenge to franchisors. In order to overcome this, franchisors should include specific terms of termination within the franchise agreement that set out the assignment of any trade names if registered in the name of the franchisor.
LAW FIRM & AUTHOR DETAILS
BSA Law is home to a "full-service department with a compelling IP offering". Our top-ranked Intellectual Property team is renowned for its "tailored, reliable solutions" and diverse strengths across the full spectrum of IP services, particularly including IP litigation, complex copyright claims and expertise in patent and trademark prosecution. According to The Legal 500, the BSA team has a "profound knowledge of intellectual property law".
BSA's Intellectual Property Team is "able to leverage its impressive regional footprint to great effect on multi-jurisdictional instructions". Notably, two members of the team are among a select group of the UAE's top trademark professionals, as cited by WTR. Over the past year, the team has seen a marked growth in the number of advisory tasks, managing cases in the field of anti-counterfeiting, anti-piracy and digital infringement in not only the Middle East but globally, particularly online. Copyright claims and issues are also extremely prevalent in the GCC region, with many claims successfully defended for our clients.
The team continues to deliver for its notable key clients, such as: WWE Entertainment LLC.; Olaplex Inc; Andersen Tax LLC; Yandex and Nammos Restaurants on a variety of contentious and non-contentious matters.
Clients from a whole range of backgrounds come to us initially for our legal knowledge and technical expertise, but they repeatedly recommend us to partners, colleagues and other professionals because we offer:
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Partner and Head of Department Munir Suboh is consistently recognised across the IP rankings as his "knowledge of IP and trademark law is impeccable" and he "is reachable round the clock". This level of technical excellence and commitment to client service permeates throughout the rest of the team, and serves as a guide for the level of care clients can expect. The team is underpinned by the capabilities of Counsel Amala Atieh, who provides unparalleled support.
The team represents a suite of clients across media, professional services firms, automotive, pharmaceutical, FMCGs, e-commerce, fashion, shipping, industrial entities and many more. Munir leads the team, while the associates ensure we have a broad range of expertise. Our growing client base, which now includes sectors such as fashion and consumer goods, is a testament to our entire team's overall strengths.
The IP Practice has been recognised by the high-quality service standards delivered by the IP team on the ground in the UAE and the region. The Legal 500 EMEA 2022 Guide notes that our IP team are "definitely my only choice when it comes to all IP related matters in the UAE and neighbouring countries". The Legal 500 2023 Guide further supports this, noting that "BSA has a very professional team of lawyers... with a profound knowledge of intellectual property law and a wide range of services".
Please input in the table below some examples of your firm's clients for this practice area, the relevant sector and jurisdiction, and the firm office that works with each client.
The client list will be alphabetised and will appear on your firm's profile page on the ICLG website. It will highlight your experience and reputation to potential clients and aims to enhance your referral network.
Firm's Top 10 Clients and Relevant Sector | |||||
No. | Client | Client Sector | Client Jurisdiction | Firm Office | |
E.g. | Company A | Energy | USA | London | |
1 | Yandex | Technology | Netherlands | Dubai | |
2 | Andersen Tax LLC | Tax/Finance | USA | Dubai | |
3 | Hairbo GmbH & Co. / Rigo Trading | Confectionary | Germany/ Luxembourg | Dubai | |
4 | Nammos Restaurants Ltd | Hospitality | UAE / Greece | Dubai | |
5 | Leonardo UK Ltd | Defence/Aerospace | UK | Dubai | |
6 | Gorilla Drinks Ltd | Food and beverage | Cyprus | Dubai | |
7 | Fossil Group Inc | Luxury fashion | USA | Dubai | |
8 | Noon AD Holding Ltd. | E-Commerce | UAE | Dubai | |
9 | WWE Entertainment LLC | Entertainment/Media | USA | Dubai | |
10 | Olaplex Inc | Beauty | USA | Dubai |
BSA Law
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Felicity Hammond – Profile
Felicity Hammond is a Senior Associate in the Intellectual Property team at BSA Law.
Recognised by IP stars and Lexis Nexis as a "Rising Star" in 2023 and 2024, Felicity is well recognised for her capabilities in IP. Felicity has also been recognised as a "notable individual" in The Legal 500 2024.
Felicity advises clients in protecting, developing and exploiting their intellectual property and technology, and has a broad range of experience in drafting and negotiating commercial agreements with an intellectual property, technology or media focus. She advises on strategic and technical intellectual property issues, helping clients to understand the scope of their rights and any risks associated with their proposed approach or arrangement.
Felicity's practice covers all aspects of intellectual property, including trademarks, copyright and related rights, domain names and patents. She advises on all aspects of brand protection, with expertise in devising enforcement strategies across the MENA region.
For Online Chapter:
LinkedIn: www.linkedin.com/in/felicity-hammond-42908352
University: University of Liverpool
Degree type (LLB / LLM / PHD / Jurisprudence Doctor JD): LL.B.
Year graduated: 2014
Any key Supervisors (LLM MPhil / PHD):
Significant Clients or cases (list up to 10 clients):
This is originally published in INTERNATIONAL COMPARATIVE LEGAL GUIDE (ICLG)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.