Franchising plays an important role in the international business sector for companies wishing to establish or expand their presence in the United Arab Emirates. It has become popular among businesses in sectors such as restaurants, retail, hospitality, healthcare, education and professional services, allowing them to establish a recognised brand in new markets with relatively limited investment.
However, whilst franchising offers many benefits, it can also create a complex relationship between the two parties. The franchisor wants to ensure that its brand maintains consistent standards and generates regular income. Meanwhile, the franchisee will have invested heavily in the business, including staff, premises, equipment and marketing, and will want to ensure that it receives the appropriate level of support and protection, as well as a reasonable opportunity to recover its investment.
Issues can arise between the two parties over matters such as royalties, sales, supply arrangements, territorial rights, operational standards and termination. These can lead to substantial commercial disputes if the franchisor and franchisee cannot reach an agreement. Disagreements may also arise over how the parties have interpreted the contract.
Unlike some other jurisdictions, there is currently no standalone federal law governing franchise relationships in the UAE. Instead, general contractual principles, commercial laws, intellectual property protection, competition laws and any relevant legislation governing registered commercial agencies may apply.
Depending on how the franchisor and franchisee have structured their relationship, they may have different rights and remedies available to them.
1. Misrepresentation and Investment Issues
Some franchise disputes arise before the first outlet opens. The franchisee may invest heavily in the franchise based on financial projections, market analysis and assurances provided by the franchisor. Problems can arise if the business does not perform as expected.
There are often disputes over sales, profitability, market potential, set-up costs and the level of support provided. The franchisee may argue that key information was not disclosed or that the financial projections were misleading. The franchisor may argue that the projections were indicative and that the franchisee is responsible for managing its own business.
Although there is no general statutory requirement to provide information in the form of a franchise disclosure document, rules are still in place to prevent either party from misrepresenting key information.
The new Federal Decree-Law No. 25 of 2025, which replaced the previous Civil Transactions Law, introduces more detailed provisions. Articles 121 and 122 outline the requirement for parties to act in good faith and disclose key information. If they fail to do so, they may be held liable and, in appropriate circumstances, may also seek termination of the agreement.
This is particularly relevant to franchise relationships, as one party may have significantly more information about the business than the other.
2. Royalties, Marketing and Financial Issues
Financial disagreements are among the most common causes of disputes between franchisees and franchisors. Most franchise agreements include an initial fee, ongoing royalties and, sometimes, a contribution to a central marketing fund.
Royalties are commonly paid as a percentage of gross sales, although some agreements provide for fixed royalties or a minimum monthly payment. Disputes can arise over what constitutes gross revenue, discounts, refunds, online sales, delivery platform fees and when payments should be made.
The franchisee may argue that certain sales should not be included in royalty calculations, such as transactions made through third-party websites. The franchisor may argue that all sales generated through the franchise should be included.
Marketing can also cause disputes. The franchisee may have concerns about how centrally collected funds are spent, whether the franchisor has provided adequate marketing and whether the franchisee is receiving a fair share of the benefits.
The franchise agreement should include details of accounting standards, reporting deadlines, inspection rights and dispute procedures. If the franchisee does not provide accurate information about its revenue, the franchisor may seek unpaid royalties. It may also be entitled to claim interest, where applicable, contractual penalties and any other available remedies.
3. Territory and Competition
Territorial issues can often cause disputes, particularly when the franchisee has invested heavily in developing a market.
The franchise agreement may state that the franchisee has exclusive rights to operate in an emirate, city or specific area. Problems can arise if the franchisor opens another outlet in the same area, appoints another franchisee or sells products online to customers within the protected territory.
Often, the issue relates to the meaning of exclusivity. Does it mean that the franchisor cannot open any company-owned outlets? Does it include deliveries, e-commerce, institutional clients or sales within shopping centres? Does exclusivity cover the entire emirate or just a specific trading area?
These matters should be carefully outlined in the franchise agreement. The franchisee may feel that appointing another operator breaches its investment rights, whilst the franchisor may argue that the agreement reserved certain distribution channels or locations.
If the relationship falls under Federal Law No. 3 of 2022 on the Regulation of Commercial Agencies, this can become a key consideration. The law sets out the statutory requirements for qualifying registered commercial agencies, including exclusivity. It is important to determine whether the agreement qualifies as a registered commercial agency. This will depend on the legal status of the franchisor and franchisee, the nature of the appointment and the applicable registration requirements. Registered commercial agencies can have significantly different legal consequences.
There are also competition-related considerations. Federal Decree-Law No. 36 of 2023 governs anti-competitive agreements and the abuse of a dominant position. Exclusive purchasing arrangements, territorial restrictions and other vertical agreements may need to be examined under this framework. The franchisor cannot assume that all restrictions included in the franchise agreement are automatically acceptable.
4. Standards, Supply and Quality Control
Standardisation across all outlets is fundamental to a franchise. Customers expect the same products, quality of service and overall experience, regardless of which outlet they visit. The franchisor will therefore often set standards that the franchisee must meet. These may include requirements relating to staff training, food preparation, premises, uniforms, equipment and quality control.
However, disputes can arise if the franchisee considers these standards too strict. The franchisor may require the franchisee to purchase ingredients, equipment or branded items from approved suppliers. The franchisee may argue that it can source items of the same quality locally at a lower cost.
Problems can also arise when there are supply interruptions. If an approved supplier is unable to provide the necessary items, the franchisee may struggle to meet sales targets or maintain operational standards. The franchisor may nevertheless insist that the franchisee follows the approved sourcing requirements to protect the brand.
There may also be disputes over refurbishment, technology upgrades and amendments to operating manuals. The franchisee may feel that it is being asked to spend substantial amounts of money upgrading its outlet, particularly if the franchise agreement does not clearly specify who is responsible for the costs.
The agreement should outline which standards are essential to the brand and which changes may require additional expenditure. It should also include details of inspection rights, timeframes for rectifying issues, approved suppliers and responsibility for supply disruptions.
The franchisor must exercise its inspection rights in good faith, while the franchisee cannot simply disregard legitimate quality requirements.
5. Intellectual Property
Intellectual property plays a key role in franchising. The franchisee pays for the right to use an established brand, trademarks, systems, operating manuals and know-how. Disputes can arise over the ownership, use and protection of these intellectual property rights.
The principal protection for trademarks is provided by Federal Decree-Law No. 36 of 2021. However, copyright and industrial property legislation may also protect relevant business documents and materials.
Common issues include the unauthorised use of trademarks, modifications to logos, misleading advertising, disclosure of confidential information and the use of proprietary business methods.
The franchisee may also have concerns about whether the franchisor has obtained sufficient protection for its trademarks in the UAE. If the brand is not registered or has not received adequate protection, this can create uncertainty for the franchisee, particularly if it has invested in building its reputation.
Once the relationship has ended, a former franchisee may wish to continue using the branding. This may include signage, packaging and social media accounts. The franchisee may argue that it needs time to clear its stock and fulfil existing commitments. The franchisor, however, may consider such continued use an infringement of its intellectual property rights.
Well-drafted agreements should include details of trademark ownership, the duration of the licence, permitted uses, quality control, confidentiality, infringement and the steps that must be taken immediately after the relationship ends.
6. Termination, Renewal and Compensation
Termination is often the most financially significant stage of a franchise dispute. The franchisor may wish to terminate the agreement because of non-payment of royalties, poor performance, repeated breaches of the agreement, reputational damage or failure to meet expansion targets.
The franchisee may dispute the decision, particularly if it believes the breach is minor, has already been rectified or resulted from the franchisor's failure to provide the agreed contractual support.
Disputes can also arise if the franchisee wants to exit the agreement early. This may be due to poor financial performance, increased costs, changes in the market or disagreements over management. However, simply deciding to leave the relationship does not automatically give the franchisee the right to terminate the agreement without consequences.
Unregistered franchise arrangements will mainly be governed by the agreement, subject to applicable UAE legal principles, including the requirement to act in good faith and not abuse contractual rights.
If the relationship constitutes a registered commercial agency, Federal Law No. 3 of 2022 will apply. It sets out specific rules relating to expiry, early termination and non-renewal, including notice requirements and compensation, where applicable.
Article 26 allows the parties to agree to arbitration for disputes relating to commercial agencies. Article 24 also provides for a role for the Commercial Agencies Committee in resolving disputes. It is important to consider the applicable dispute resolution procedures before initiating proceedings.
7. Customer Complaints
A franchise dispute may not be confined to the franchisor and franchisee. Poor product quality, misleading advertising, defective products, inadequate services or failures to meet customer data obligations may expose the business to regulatory action and consumer complaints.
Federal Law No. 15 of 2020 governs consumer protection in relation to goods and services supplied within the UAE. Its scope includes relevant activities carried out by commercial agents. It outlines obligations concerning product quality, price transparency, consumer rights and supplier responsibilities.
Disputes can arise if the franchisor believes that a problem resulted from the franchisee's failure to follow the correct procedures, while the franchisee argues that it was caused by centrally supplied products or faulty equipment.
The franchise agreement should outline who is responsible for product recalls, handling customer complaints, refunds, warranties, regulatory inspections and compensation claims. However, contractual arrangements between the parties do not remove their statutory obligations towards consumers.
8. Dispute Resolution
The method of resolving a dispute can affect how quickly it is settled. UAE franchise agreements commonly include a dispute resolution clause providing for proceedings before the courts or arbitration under Federal Law No. 6 of 2018.
International franchisors may prefer arbitration because it offers flexibility in choosing the language, location and decision-makers. UAE-based franchisees may prefer local courts, particularly if the dispute relates to local operations or assets.
There are also separate legal and judicial systems in place in the Dubai International Financial Centre and Abu Dhabi Global Market. If the agreement is connected to either of these jurisdictions, the parties should consider the applicable requirements.
With the introduction of the new Civil Transactions Law, it is important to consider its provisions. Article 120 sets out principles for interpreting contractual terms, including considerations of justice and good faith. Article 221 also provides that contractual obligations must be performed in good faith.
These provisions may become relevant to long-term franchise agreements, particularly where disputes concern unclear obligations, changing market conditions or the exercise of contractual discretion. The relevant transitional provisions should also be considered if the agreement was entered into before June 1, 2026.
Avoiding Disputes
Most franchise disputes do not arise from a single event. They often develop through an accumulation of disagreements over financial obligations, commercial expectations, operational control and the allocation of risk.
The franchisor will want to maintain brand consistency without imposing obligations that are commercially unrealistic or inadequately defined. The franchisee must understand the financial and operational commitments it is accepting, as well as the limitations relating to territorial rights and intellectual property licences.
Clear contractual terms covering royalties, marketing, inspection rights, supply arrangements, performance targets, renewal and post-termination obligations can substantially reduce uncertainty. Both parties should maintain accurate financial records, inspection reports, correspondence and evidence of contractual performance.
As there is no specific franchise law in the UAE, considerable importance must be attached to how franchise agreements are structured. With the introduction of the new Civil Transactions Law in June 2026, reviewing existing contractual arrangements is particularly important.
Ultimately, a successful franchise relationship depends on a realistic allocation of commercial risk, transparent financial arrangements and a legal framework that enables both parties to protect their legitimate interests without undermining the business they have built together.
Dr. Sunil Ambalavelil is the Global Executive Chairman of Kaden Boriss, an international law firm specialising in franchise and business agreements. A seasoned legal adviser, he has advised and supported the international growth of numerous global brands, helping them navigate the legal complexities of cross-border expansion.
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