Lead Story

Buying a franchise in the UAE can offer an entrepreneur access to an established brand, operating model and customer base, but the familiarity of the name does not remove the risks that come with running the business. A franchise agreement can impose substantial financial commitments and long-term obligations, while leaving important decisions about pricing, suppliers, branding, technology and operations under the franchisor’s control.

For a prospective franchisee, the most important question is therefore not simply whether the brand is successful elsewhere, but whether the particular franchise is commercially viable in the UAE and whether the agreement fairly allocates the risks between the parties.

Before signing, a franchisee should conduct independent financial, commercial and legal due diligence. The following 10 issues deserve particular attention.

1. Understand the Total Investment

The initial franchise fee is only one part of the cost of establishing a franchise. A prospective franchisee should calculate the full investment required, including premises, fit-out, equipment, licences, technology, staff recruitment and training, insurance, initial inventory, marketing and working capital.

The financial assessment should also consider recurring payments such as royalties, advertising contributions, technology charges, renewal fees and other amounts payable to the franchisor or its nominated suppliers. A business that appears affordable based on the initial fee can become significantly more expensive once these obligations are included.

The franchisee should prepare realistic cash-flow projections covering the period required to reach break-even, rather than relying solely on sales forecasts supplied by the franchisor.

2. Investigate the Brand and Business Model

An established international brand does not automatically guarantee success in the UAE. The franchisee should examine the brand’s financial performance, reputation, customer base and track record in markets comparable to the UAE.

Particular attention should be paid to the performance of existing and former franchisees. Speaking independently with franchisees can provide useful information about actual sales, operating costs, franchisor support, disputes and the practical relationship between the parties.

The franchisee should also determine whether the business model has been adapted to local consumer preferences, regulations, labour costs, rents and competitive conditions. A concept that performs well in another country may require significant modification to succeed in the UAE.

3. Examine the Franchise Agreement Carefully

The franchise agreement is likely to be the central document governing the relationship, and it should not be treated as a standard formality. The franchisee should understand every significant obligation before signing, particularly provisions dealing with fees, territory, performance requirements, intellectual property, suppliers, reporting, renewal, termination and post-termination restrictions.

The agreement should also be examined alongside related documents, including operating manuals, disclosure materials, development schedules, lease arrangements, supply agreements and personal guarantees.

Where provisions are unclear or appear inconsistent with representations made during negotiations, the franchisee should seek clarification and have important commercial promises incorporated into the contractual documents rather than relying on verbal assurances.

4. Check the Territory and Exclusivity

Territorial rights can have a major impact on the value of a franchise. A franchisee should establish precisely where it is permitted to operate and whether the franchisor can appoint another franchisee, open its own outlet or sell through alternative channels within the same area.

Exclusivity should not be assumed merely because the franchisor describes a territory as exclusive during negotiations. The contractual wording should explain what is protected and whether exceptions apply to online sales, delivery platforms, supermarkets, corporate customers, kiosks or other channels.

A franchisee investing heavily in a location may face serious commercial pressure if competing outlets or sales channels are later introduced nearby.

5. Calculate Royalties and Other Ongoing Fees

Franchise royalties are commonly calculated by reference to revenue, but the financial consequences can vary considerably depending on the agreement. The franchisee should understand whether royalties are based on gross sales, net sales or another measure, and whether there are minimum payments.

Advertising and marketing contributions should also be examined. The franchisee should know how these funds are collected, how they can be used and whether the franchisor is required to account for their expenditure.

Other charges, including technology, training, renewal, audit and administrative fees, should be identified before signing. Even relatively small recurring charges can materially affect profitability over the life of the franchise.

6. Assess Suppliers, Pricing and Operational Control

Many franchise agreements require franchisees to purchase products, equipment or services from approved suppliers. Such restrictions can protect quality and brand consistency, but they can also affect margins if approved products are more expensive than locally available alternatives.

The franchisee should determine whether the franchisor can change suppliers, specifications or purchasing requirements without the franchisee’s consent. The agreement should also be reviewed for provisions allowing the franchisor or suppliers to increase prices.

Operational controls may extend to opening hours, staffing, uniforms, premises design, technology, promotions and product offerings. The franchisee should understand how much commercial flexibility remains after signing and whether changes can result in additional costs.

7. Verify UAE Licensing and Regulatory Requirements

A franchise business must comply with the UAE’s applicable licensing and regulatory framework, which can vary according to the activity, emirate and structure of the business. Depending on the franchise, requirements may involve commercial licensing, food and safety rules, consumer protection, employment, intellectual property, advertising and sector-specific regulations.

The franchisee should establish which party is responsible for obtaining and maintaining each licence and approval. It should also clarify whether the franchisor has obligations to provide documents, technical specifications or other assistance required for regulatory approvals.

Legal due diligence is particularly important where the franchise involves regulated activities, imported products, personal data, financial services, healthcare, education or food and beverage operations.

8. Protect Intellectual Property and Know-How

The principal attraction of many franchises is the right to use an established brand and business system. The agreement should therefore clearly identify the trademarks, trade names, designs, software, manuals and other intellectual property that the franchisee is entitled to use.

The franchisee should verify that the relevant intellectual property is properly protected and that the franchisor has the necessary rights to grant the licence in the UAE.

The agreement should also explain what happens to confidential information and intellectual property when the franchise ends. Restrictions on continued use of the brand, business methods and confidential information can have significant consequences, particularly for an entrepreneur who has invested years building the operation.

9. Understand Renewal and Termination Rights

A franchise agreement may provide for a fixed initial term followed by renewal periods, but renewal should not be taken for granted. The franchisee should examine renewal conditions, fees, performance requirements and any requirement to sign the franchisor’s then-current agreement.

Termination provisions deserve equally close attention. The franchisee should identify what constitutes a breach, whether there is a cure period and when the franchisor can terminate immediately.

The financial consequences of termination can be substantial. The franchisee may be required to stop using the brand, remove signage, return confidential material, dispose of inventory, transfer certain assets or meet continuing payment obligations. These consequences should be understood before the investment is made.

10. Plan for Disputes and Exit

No franchise relationship should be entered into on the assumption that disputes will never arise. The agreement should specify the governing law and dispute-resolution mechanism and identify where proceedings or arbitration will take place.

A franchisee should consider whether the selected forum is practical and whether enforcement of a judgment or arbitral award would be straightforward in the relevant jurisdictions, particularly where the franchisor is based outside the UAE.

The franchisee should also consider its exit strategy before signing. Restrictions on transferring the franchise, selling the business or bringing in a new investor can make it difficult to recover the investment. Consent requirements, transfer fees, valuation mechanisms and the franchisor’s rights to approve a purchaser should all be examined.

Due Diligence Can Prevent Costly Mistakes

A franchise offers the potential advantage of entering the market with an established brand and tested business system, but it is not a guaranteed route to profitability. The franchisee remains responsible for rents, employees, financing, local compliance and day-to-day commercial performance, while the agreement may impose extensive obligations towards the franchisor.

The strongest approach is to assess the franchise as an independent business investment rather than simply buying into a familiar name. Financial projections should be tested against realistic costs, existing franchisees should be consulted where possible, and the agreement should be reviewed by an independent lawyer with relevant franchise and commercial experience.

For entrepreneurs considering a UAE franchise, the decision should ultimately be based on three questions: Can the business make money in the chosen market? Are the contractual risks acceptable? And can the franchisee realistically operate within the restrictions imposed by the franchisor?

Answering those questions before signing can be far less expensive than discovering the answers after the investment has been made.

Franchising can offer businesses a relatively efficient route to expansion, while giving entrepreneurs access to established brands, operating systems and customer recognition. But the model also creates a complex relationship in which commercial expectations, contractual obligations and brand standards must remain aligned.

When that balance breaks down, a franchise can fail for reasons that often emerge long before a business closes its doors. Over-optimistic financial projections, insufficient due diligence, poorly drafted agreements, unsuitable territories and inadequate protection of intellectual property can expose both franchisors and franchisees to significant financial and legal risks.

The failure of a franchise is rarely attributable to one mistake. More often, it results from a series of decisions made at the outset that were not properly tested against market conditions, contractual realities or the capabilities of the parties involved.

Unrealistic Financial Projections

One of the most common weaknesses in franchise ventures is the reliance on financial projections that do not adequately reflect the risks of operating the business.

A prospective franchisee may be attracted by projected turnover, profit margins or a relatively short period for recovering the initial investment. However, those figures may not account sufficiently for rent, staffing costs, marketing expenditure, royalties, technology fees, working capital requirements and unexpected operating expenses.

Franchisors also face risks when projections are presented too aggressively. If prospective franchisees believe that the franchisor has guaranteed a particular level of revenue or profitability, disappointment can quickly turn into a contractual or commercial dispute.

Both sides should therefore distinguish clearly between historical performance, assumptions and forward-looking estimates. A franchisee should independently test the business model rather than relying exclusively on figures supplied by the franchisor.

The central question should be whether the business remains viable if sales are lower than expected, costs rise or the break-even point takes longer to reach.

Due Diligence Cannot Be an Afterthought

Due diligence is sometimes treated as a formal step before signing a franchise agreement. In reality, it should begin much earlier.

A franchisee should investigate the franchisor's business model, financial standing, intellectual property rights, litigation history, existing franchise network, fees and obligations. Speaking to existing and former franchisees can also reveal practical difficulties that may not be apparent from promotional material.

The investigation should extend to the proposed market. A successful franchise in one country, city or neighbourhood does not automatically translate into a successful operation elsewhere. Consumer behaviour, purchasing power, competition, labour costs, regulation and cultural preferences can materially affect performance.

Franchisors, meanwhile, should conduct due diligence on prospective franchisees. Financial resources are important, but so are management experience, operational capability and the ability to comply with the brand's systems.

Choosing a franchisee simply because the applicant can pay the initial fee can create problems later if that person lacks the skills or resources to operate the business.

Weak Agreements Create Room For Disputes

A franchise relationship is governed primarily by its contractual framework, making the franchise agreement one of the most important documents in the entire transaction.

Problems arise when agreements are drafted too generally or fail to reflect how the business will actually operate. Issues such as franchise fees, royalties, marketing contributions, intellectual property rights, supply arrangements, training, performance standards, renewal, termination and post-termination obligations should be addressed clearly.

Territorial rights require particular attention. A franchisee may assume that having a particular location gives them protection from competition within a defined area, while the franchisor may intend to retain the right to open additional outlets, operate digital channels or appoint other franchisees. Such misunderstandings can become particularly serious once a franchise begins generating revenue.

The agreement should also establish what happens when the relationship deteriorates. Termination provisions, notice requirements, cure periods, transfer rights and post-termination restrictions should be clear enough to reduce uncertainty when the parties are no longer working cooperatively.

Territory Planning Can Make Or Break a Franchise

A strong brand does not guarantee that every location will succeed. Poor territory planning can result in franchisees competing against one another for the same customers and undermining the economics of the network.

A franchisor expanding too rapidly may grant overlapping territories without properly considering population, demographics, traffic patterns, online sales and future development. A franchisee may then find that a second outlet or competing franchise has been established close enough to reduce its customer base.

Territory provisions should therefore be based on commercial analysis rather than simply drawing boundaries on a map. Depending on the business, the relevant territory may need to account for physical outlets as well as websites, mobile applications, delivery platforms and other digital sales channels.

For franchisees, exclusivity should never be assumed merely because a territory is described as "exclusive" in marketing material. The precise contractual definition should be examined carefully, including any exceptions retained by the franchisor.

Brand Protection Requires More Than a Trademark

The value of a franchise often rests heavily on its brand. Customers may choose a particular outlet because they recognise its name, reputation, products and service standards.

That makes intellectual property protection critical. Trademarks, copyright, trade secrets, confidential information, business methods, domain names and proprietary software may all form part of the franchise system.

A franchisor that fails to protect these assets risks dilution of the brand and inconsistent customer experiences. Weak controls can also make it easier for former franchisees or third parties to continue using confidential information or elements of the business model after a relationship ends.

Franchise agreements should establish clearly how intellectual property may be used, who owns it and what happens to that right when the agreement terminates. Confidentiality obligations and restrictions on unauthorised use should also be considered carefully and drafted in accordance with applicable law.

For franchisees, compliance with brand standards is equally important. Unauthorised changes to products, advertising, logos or operating procedures can expose the franchisee to contractual action while damaging the wider network.

Failure to Understand Local Laws

International franchising adds another layer of complexity because the agreement does not operate in isolation from local law.

Depending on the jurisdiction, franchising may intersect with rules governing commercial agencies, competition, intellectual property, consumer protection, employment, data protection, taxation, licensing and foreign investment.

A structure that works in the franchisor's home market may therefore require substantial modification before being introduced elsewhere.

Franchisees should establish which licences and approvals are required before committing capital, while franchisors should verify that their proposed expansion structure complies with the laws of the target market.

The choice of governing law and dispute-resolution mechanism also deserves careful consideration. A contract governed by one jurisdiction but performed almost entirely in another may create practical complications if a dispute arises.

Commercial Expectations Must Match the Contract

Many franchise disputes begin with a gap between what one party expected and what the contract actually provides.

A franchisee may expect extensive operational support, guaranteed marketing, preferential supply terms or protection from nearby competitors. The franchisor may believe that its obligations are limited to training, brand licensing and periodic support.

Those expectations should be converted into clearly defined contractual obligations wherever possible. Vague promises about "support" or "business assistance" can become difficult to enforce because the parties may have very different interpretations of what they mean.

The same principle applies to performance obligations. If a franchisor requires minimum sales, staffing levels, opening hours or marketing expenditure, these requirements should be clearly communicated and reflected in the agreement.

Growth Should Not Come at the Expense of Control

For franchisors, rapid expansion can be attractive because it increases brand visibility and generates fees and recurring revenue. But uncontrolled growth can weaken the very brand that makes the franchise attractive.

Every additional franchisee creates another point at which customers experience the brand. Poorly trained operators, inconsistent service, inadequate compliance or weak financial management can therefore affect the reputation of the entire network.

Franchisors should have appropriate systems for recruitment, training, monitoring and enforcement. Franchisees, meanwhile, should understand that purchasing a franchise is not the same as buying an independent business with complete freedom over how it operates.

The franchise model depends on consistency. Both sides must recognise that brand standards are not merely administrative requirements but part of the commercial value being created.

Prevention is Cheaper Than a Franchise Dispute

The strongest protection against franchise failure is careful preparation before the relationship begins.

For franchisees, that means conducting independent financial and legal due diligence, stress-testing projections, understanding the full cost of the investment and negotiating important contractual provisions before signing.

For franchisors, it means selecting franchisees carefully, protecting intellectual property, developing realistic expansion plans and ensuring that franchise agreements accurately reflect the intended business model.

Neither party should assume that a successful brand automatically produces a successful franchise. Commercial viability depends on location, management, capital, market conditions and execution, while legal certainty depends on a carefully structured contractual relationship.

A franchise can provide a powerful platform for growth, but its success ultimately depends on whether both parties enter the relationship with realistic expectations and a clear understanding of their respective rights and obligations.

The most expensive franchise mistakes are often those made before the first customer walks through the door. Proper due diligence, realistic projections, careful territory planning and a robust agreement cannot eliminate every risk, but they can significantly reduce the likelihood that commercial disagreements will develop into business failure or litigation.

Buying into a franchise can appear to reduce some of the risks associated with starting a business from scratch. Investors may gain access to an established brand, operating systems, supplier networks, training and a proven product or service. But those advantages do not guarantee profitability.

A franchise remains a business that must generate sufficient revenue to cover its costs and provide an acceptable return on the investor’s capital. Before signing a franchise agreement or committing funds to a location, prospective franchisees should therefore build a detailed business plan based on realistic assumptions rather than the franchisor’s headline sales figures.

The exercise should answer a fundamental question: how much money will the business require before it becomes self-sustaining, and how long can the investor afford to wait for that point to be reached?

Calculate the Full Initial Investment

The first calculation should go well beyond the franchise fee. Depending on the business, the initial investment can include franchise or licence fees, property deposits, fit-out costs, equipment, furniture, technology, signage, professional fees, licences, insurance, opening inventory and pre-opening marketing.

Investors should also account for costs that arise before the first sale. A restaurant, for example, may require substantial expenditure on kitchen equipment, interior works, permits and staff recruitment before opening its doors. A retail outlet may have significant inventory and fit-out requirements, while a service business may require vehicles, specialist equipment or software.

The business plan should identify each expected cost separately and distinguish between mandatory expenditure and discretionary spending. Investors should also establish whether the franchisor requires particular suppliers, equipment or contractors, as those requirements can affect the final cost.

A contingency allowance is equally important. Construction delays, equipment replacement, licensing issues or unexpected professional fees can push the opening budget above the original estimate. A plan that assumes every expense will match the lowest quotation may provide a misleading picture of the capital required.

Do Not Underestimate Working Capital

An investor can have enough money to open a franchise and still run out of cash within months. That is why working capital should be calculated separately from the initial investment.

Working capital is the cash needed to keep the business operating while revenue builds up. It may cover salaries, rent, utilities, inventory, insurance, technology, maintenance, marketing and other recurring expenses during the early months.

The investor should model different scenarios rather than relying on a single forecast. The business may take longer than expected to reach its target customer base, or sales could be lower during the first six or 12 months.

A prudent plan should therefore determine how many months of operating expenses can be funded without relying on optimistic revenue assumptions. The appropriate reserve will vary by sector, but the underlying principle is straightforward: opening capital and emergency operating cash are not the same thing.

Establish the Break-Even Point

One of the most important calculations is the break-even point — the level of sales at which the business covers its costs but has not yet generated a profit.

Fixed costs such as rent, certain salaries, insurance and some technology expenses generally have to be paid regardless of sales. Variable costs, including ingredients, packaging, transaction charges or product costs, tend to rise with revenue.

The break-even calculation helps an investor determine how much must be sold each month before the business starts generating an operating profit.

For example, if a business has high fixed costs and relatively low margins, it may need a substantial sales volume to reach break-even. A franchisee should therefore compare the projected break-even sales with the realistic capacity of the proposed location.

The calculation should also be tested under weaker trading conditions. If the business only becomes profitable when sales reach an unusually high level, that should be treated as a warning rather than simply incorporated into the forecast.

Account for Royalties and Other Franchise Fees

Franchise economics can differ considerably from those of an independent business because the franchisee may have continuing financial obligations to the franchisor.

The franchise agreement may require an initial franchise fee as well as ongoing royalties, which can be calculated as a percentage of gross sales or under another agreed structure. There may also be marketing or advertising contributions, technology fees, renewal fees, training charges or other payments.

Investors should model these costs over the entire forecast period rather than treating the initial franchise fee as the principal franchise expense.

A royalty based on revenue is particularly important because it may be payable even when the franchisee’s profit margin is under pressure. For that reason, investors should calculate their expected profit after royalties and other franchisor-related charges, not before them.

The business plan should also examine whether fees increase over time and whether there are minimum payments or other contractual obligations.

Treat Rent as a Major Business Variable

Location can be central to a franchise’s success, particularly in food, retail, hospitality and other consumer-facing sectors. But a prominent location can also carry a high rental cost that places pressure on margins.

Investors should calculate rent as part of the overall economics rather than assuming that higher footfall will automatically compensate for higher occupancy costs.

The analysis should consider base rent, service charges, deposits, fit-out periods, rent-free periods, utilities and any turnover-based rent. It should also examine the length and renewal terms of the lease and whether the premises lease is properly aligned with the franchise agreement.

A mismatch can create significant commercial risk. An investor could face a franchise commitment extending beyond the security of the property lease, or incur substantial fit-out expenditure without sufficient certainty over the premises.

Build a Realistic Staffing Model

Staffing costs can quickly become one of the largest recurring expenses. Investors should calculate not only basic salaries but also recruitment costs, training, benefits, overtime, uniforms, insurance, visa or employment-related expenses where applicable, and the cost of replacing employees.

The staffing model should be based on actual operating requirements. A business that needs additional employees during peak periods should reflect those costs in its forecast.

Investors should also avoid assuming that every employee will be fully productive from the first day. Training and opening-period inefficiencies can affect labour costs and service levels.

The objective is not to produce the lowest possible staffing budget but to determine the workforce required to operate the franchise properly and what that workforce will cost.

Budget for Marketing and Customer Acquisition

A recognised franchise brand may reduce the burden of building a reputation from zero, but it does not eliminate the need for local marketing.

The business plan should distinguish between marketing fees payable to the franchisor and local promotional expenditure. Depending on the agreement, a franchisee may have limited control over certain campaigns while still being responsible for generating local demand.

Opening promotions, digital advertising, social media, events, loyalty programmes and local partnerships can all involve additional costs.

Investors should therefore ask what marketing support is actually included in the franchise package and what they will have to fund themselves. A forecast that assumes customers will arrive simply because the brand is well known may be overly optimistic.

Challenge the Revenue Projections

Revenue projections are often the most difficult part of a franchise business plan because they can be influenced by assumptions about customer numbers, average transaction value, operating hours, capacity and market demand.

Investors should not simply adopt the best-performing figures supplied by a franchisor. They should understand how those figures were produced, what markets they relate to and whether the underlying conditions are comparable to the proposed location.

A useful approach is to prepare at least three scenarios: a conservative case, a base case and an optimistic case. The conservative case should reflect weaker sales, slower customer growth or higher costs. The base case should use assumptions that can be supported by available evidence, while the optimistic case should be treated as an upside scenario rather than the foundation of the investment decision.

Investors should also consider seasonality. A business may perform strongly during holidays or tourist periods but experience weaker demand during other months. Annual revenue can conceal substantial monthly cash-flow variations.

Measure the Return On Investment

Revenue and accounting profit are not enough. Investors should calculate the return they expect to receive on the capital committed to the franchise.

This should take into account the initial investment, additional working capital, financing costs, expected annual profit and the time required to recover the original investment.

A franchise generating a modest profit may not necessarily be an attractive investment if it requires a very large amount of capital. Conversely, a business with a relatively small initial investment may offer a more compelling return even if its absolute profit is lower.

Investors should also examine how sensitive the return is to changes in sales, rent, labour costs and margins. If a small decline in revenue turns an apparently profitable franchise into a loss-making operation, the investment may carry more risk than the headline figures suggest.

Review the Assumptions Before Signing

A financial model is only as reliable as the assumptions behind it. Before committing to a franchise, investors should test the figures against independent information wherever possible, including local rents, labour costs, supplier prices, comparable businesses and the characteristics of the proposed market.

They should also review the franchise agreement alongside the financial model. Commercial terms such as territory restrictions, minimum performance requirements, renewal conditions, termination rights, non-compete provisions, supplier obligations and fee structures can materially affect the economics of the business.

Professional legal and financial advice can be particularly valuable where the investment involves substantial capital or a long-term contractual commitment.

The Numbers Should Drive the Decision

A franchise can provide a valuable shortcut to market entry, but it is not a shortcut to financial discipline. The strength of a brand cannot compensate indefinitely for excessive rent, weak margins, inadequate working capital or unrealistic sales expectations.

Before taking the plunge, an investor should know the total amount required to open the business, the cash needed to survive the initial trading period, the monthly break-even point, the effect of royalties and other fees, the staffing and marketing costs, and the level of revenue required to produce an acceptable return.

The most useful franchise business plan is therefore not the one that produces the most attractive forecast. It is the one that shows what happens when assumptions go wrong — and whether the investor can still afford to operate the business.

That distinction can determine whether a franchise becomes a sustainable investment or an expensive lesson.

Cross-border franchise agreements can give parties significant freedom to choose the law and forum governing their relationship, but mandatory local laws, jurisdictional rules and enforcement requirements can still shape how a dispute is ultimately resolved.

International franchising often involves parties, assets and obligations spread across several jurisdictions. A franchisor may be incorporated in the United States or Europe, the franchisee may operate through a company in the UAE, and the franchise business itself may involve premises, employees, customers, intellectual property and suppliers in the local market. When a dispute arises, the question is not simply which party is right. It is also where the dispute should be heard, which law should apply and whether the eventual judgment or arbitral award can be enforced.

These issues are usually addressed through the franchise agreement's governing law, jurisdiction and dispute-resolution clauses. Parties may agree to apply the law of one country while submitting disputes to courts in another, or they may choose arbitration seated in a third jurisdiction. Such arrangements can provide certainty, but they do not necessarily remove the application of mandatory rules in the country where the franchise operates.

For UAE-based franchise arrangements, this distinction is particularly important. A carefully drafted clause can reduce uncertainty, but it cannot automatically prevent local courts or regulators from applying mandatory UAE provisions where those rules are relevant.

Governing Law and Court Jurisdiction are Different

One of the most common misconceptions in cross-border contracts is that the governing law clause automatically determines where a dispute will be heard. It does not.

A governing law clause answers the question: which country's substantive law should be used to interpret the agreement and determine the parties' contractual rights and obligations?

A jurisdiction clause addresses a different question: which court or courts have authority to hear the dispute?

For example, a franchise agreement could provide that it is governed by English law but that disputes must be brought before the courts of Dubai. Alternatively, the parties could choose English law and the courts of England and Wales. They could also select English law but agree that disputes will be resolved through arbitration seated in Paris or Dubai.

The commercial consequences of these choices can be significant. A court applying foreign law may require evidence or expert testimony about that law. A foreign judgment may then have to go through an enforcement process in the country where the losing party or its assets are located.

For that reason, choosing a governing law and choosing a dispute forum should be treated as two separate but connected decisions.

Can UAE Franchise Parties Choose Foreign Law?

In principle, commercial parties can agree to the application of foreign law in their contractual relationship. However, that does not mean that every aspect of a franchise operation in the UAE can be removed from the reach of UAE law.

A franchise agreement may contain provisions governed by the law chosen by the parties, particularly on matters such as contractual interpretation, payment obligations, breach, indemnities and termination. But mandatory rules of the jurisdiction where the business operates may still become relevant.

This is particularly important where the dispute concerns matters regulated by local legislation or public policy. Questions involving employment, licensing, consumer protection, intellectual property registration, competition, commercial agency arrangements, data protection, tax or other regulated activities may involve rules that cannot simply be displaced by a contractual choice of foreign law.

The practical lesson for franchisors and franchisees is that a foreign governing law clause should not be viewed as a substitute for local legal compliance. A franchisee operating in the UAE still needs to assess the legal requirements applicable to its business in the emirate and sector in which it operates.

Choosing Foreign Courts Can Create Practical Problems

The parties may agree that disputes will be heard by courts outside the UAE, but agreeing to a foreign court is only one part of the dispute-resolution strategy.

Suppose a UAE franchisee signs an agreement with a foreign franchisor and agrees that disputes must be heard exclusively by courts in the franchisor's home country. If the franchisee later loses a case there and the franchisor seeks to recover money from assets located in the UAE, the foreign judgment may need to be recognised and enforced in the UAE. That can create an additional procedural stage.

The UAE has rules governing the recognition and enforcement of foreign judgments and orders. Consequently, the enforceability of the judgment in the jurisdiction where assets are located should be considered when the contract is negotiated, rather than only after litigation has begun.

This is one reason businesses often pay as much attention to enforcement as they do to the initial choice of court. A judgment is commercially useful only if it can ultimately be converted into recovery.

Why Arbitration is Often Considered

For international franchise arrangements, arbitration can offer an alternative to national courts. Arbitration allows the parties to specify the institution or rules governing the proceedings, the seat of arbitration, the language and, in many cases, the number and qualifications of arbitrators.

The UAE's Federal Law No. 6 of 2018 on Arbitration provides the principal federal framework for arbitration in the UAE. The law recognises the binding nature of arbitral awards, while requiring court confirmation for enforcement in the UAE.

The choice of the seat of arbitration is particularly important. The seat is not merely the physical location where hearings take place. It determines the legal framework supervising the arbitration and can affect challenges to the award and the courts that have supervisory authority.

Parties can therefore have hearings in one country while choosing another country as the legal seat. The distinction should be expressly addressed in the franchise agreement to avoid later arguments over the arbitration's legal framework.

The Arbitration Clause Needs More Than One Sentence

A poorly drafted arbitration clause can create almost as much uncertainty as having no dispute-resolution clause at all.

A franchise agreement should ideally identify the arbitration institution or rules, the seat, the language, the number of arbitrators and the scope of disputes covered. It should also be clear whether the arbitration clause applies to disputes concerning termination, intellectual property, unpaid royalties, post-termination restrictions and other obligations arising from the franchise relationship.

Parties should also consider whether urgent interim relief may be required. A franchisor dealing with alleged misuse of trademarks or confidential business information may need urgent measures before the final dispute is determined. The agreement should be structured with these possibilities in mind.

The UAE arbitration framework also provides grounds on which an arbitral award can be challenged or set aside, including circumstances involving the arbitration agreement itself.

Enforcement is the Real Test

The most carefully drafted dispute-resolution clause cannot guarantee a commercially successful outcome if enforcement has not been considered.

A franchise dispute can involve several categories of assets. The franchisor may have trademarks, bank accounts or other assets in its home jurisdiction, while the franchisee's principal assets, inventory, premises and bank accounts may be in the UAE.

Before selecting a court or arbitral seat, both parties should therefore consider where the likely assets are located and how an eventual judgment or award would be enforced there.

Arbitration can be attractive in international transactions because arbitral awards may benefit from international enforcement mechanisms. The UAE is a party to the New York Convention, which provides a widely used framework for recognition and enforcement of foreign arbitral awards.

That does not mean enforcement is automatic. The enforcing court will still examine the applicable legal requirements and any grounds for refusing recognition or enforcement. The arbitration agreement must therefore be drafted carefully and the proceedings conducted in a manner that protects the award from later challenge.

Mandatory Local Laws Can Still Matter

A foreign governing law clause does not create a legal vacuum around the franchise business. For example, a franchise agreement governed by the law of another country may still involve UAE rules concerning the operation of the franchise, employment of local staff, commercial licences, intellectual property registration, consumer dealings and other activities carried out within the UAE.

The same principle applies to contractual provisions that attempt to restrict the ability of a party to seek relief from local courts where mandatory jurisdictional rules apply.

This is why a cross-border franchise agreement should be reviewed from two perspectives: the law chosen by the parties and the mandatory rules of the country where the franchise operates.

Termination Disputes Require Particular Care

Termination is often the most contentious stage of a franchise relationship. A franchisor may claim that the franchisee has failed to pay royalties, breached brand standards or misused intellectual property. The franchisee may argue that the franchisor failed to provide support, wrongfully terminated the agreement or breached exclusivity obligations.

The dispute-resolution clause can determine where these issues are litigated or arbitrated, but the consequences of termination may extend beyond the contract itself.

A dispute may involve the continued use of trademarks, possession of premises, employees, customer databases, inventory, confidential information and outstanding payments. Some of these matters may require action in the country where the business is physically located even if the principal contractual dispute is being determined elsewhere.

The agreement should therefore anticipate the possibility of parallel legal issues rather than assuming that a single foreign court or arbitral tribunal will resolve every practical consequence of termination.

What Franchisors and Franchisees Should Check

Before signing a cross-border franchise agreement, both sides should examine the dispute-resolution provisions alongside the commercial terms.

They should establish whether the governing law is appropriate for the transaction, whether the jurisdiction clause is exclusive or non-exclusive, and whether the chosen court is likely to accept jurisdiction. If arbitration is selected, the parties should identify the seat, rules, institution and language and understand how an award would be enforced where the counterparty's assets are located.

The parties should also identify provisions that may be subject to mandatory local law. A UAE franchisee, for example, should not assume that selecting foreign law means UAE regulatory requirements can be disregarded.

It is equally important to examine the agreement's termination, intellectual property, confidentiality, payment, indemnity and post-termination provisions together with the dispute-resolution clause. A dispute rarely concerns only one clause of a franchise agreement.

Drafting for the Dispute You Hope Never Happens

Cross-border franchise agreements are often negotiated with the expectation that the relationship will remain commercially successful. The governing law and dispute-resolution provisions may receive less attention than royalties, territory or marketing obligations. That approach can prove costly when the relationship breaks down.

The better approach is to treat dispute resolution as part of the commercial architecture of the franchise from the outset. The parties should decide not only which law they want to govern their contract, but also which forum is most practical, where evidence and witnesses are likely to be located, where assets may be found and how an eventual decision will be enforced.

For UAE franchise businesses, the central question is therefore not simply whether a contract can choose foreign law and foreign courts. It is whether that choice will produce a predictable and enforceable result when a dispute crosses borders.

A well-drafted agreement should make those consequences clear before the parties sign. Once a dispute has started, changing an inconvenient choice of law or forum can be considerably more difficult.

Franchise relationships are built on long-term commercial commitments, but they can unravel quickly when disagreements arise over royalties, territorial rights, performance standards, intellectual property, termination or renewal. When negotiations fail, franchisors and franchisees must decide how the dispute will be resolved: through court litigation or arbitration.

The choice is not simply a question of which process is faster. It can affect the forum in which the dispute is heard, the confidentiality of sensitive business information, the ability to challenge a decision, the cost of proceedings and the ease with which an eventual judgment or award can be enforced.

For international franchise networks operating across several jurisdictions, the decision becomes even more significant. A carefully drafted dispute-resolution clause can reduce uncertainty, while a poorly drafted one can itself become the subject of litigation.

Why Franchise Disputes Can Become Complex

Unlike a conventional commercial contract, a franchise agreement typically governs a continuing relationship involving trademarks, operating standards, supply arrangements, fees, marketing obligations and business know-how. A dispute may therefore involve several contracts and parties at the same time.

A franchisee might allege that a franchisor has unfairly restricted its territory or failed to provide promised support. A franchisor, meanwhile, could claim unpaid royalties, misuse of intellectual property or a failure to comply with operational standards. Termination disputes can be particularly contentious because both sides may have substantial financial interests in keeping the business operating.

The legal issues can also extend beyond the franchise agreement. Employment, competition, intellectual property, consumer protection, agency, taxation and corporate law may all become relevant.

That complexity makes the dispute-resolution mechanism more than a standard boilerplate provision. It is a strategic part of the franchise agreement.

The Case For Litigation

Court litigation remains an important option, particularly where a dispute requires the involvement of state authorities or where the parties need remedies that are more readily available through the courts.

A court proceeding may be appropriate where the dispute involves third parties that are not bound by the arbitration agreement. This can matter in franchise disputes where claims extend beyond the franchisor and franchisee to directors, suppliers, landlords or other entities.

Court proceedings may also provide established procedural mechanisms, including appeals where available under the applicable legal system. The UAE's official government platform, for example, recognises civil litigation as a formal route for resolving disputes and provides mechanisms for filing and conducting proceedings electronically.

There can also be practical advantages to having a dispute determined by a national court when the assets, business operations and evidence are concentrated in that jurisdiction.

But litigation has disadvantages. Court proceedings may become lengthy, procedural and costly, particularly where appeals are pursued. Public court proceedings can also expose commercially sensitive information, although the degree of public access varies between jurisdictions and types of proceedings.

For a franchise business whose reputation and confidential operating model are commercially important, that exposure can be a serious consideration.

Why Arbitration Appeals to Franchise Networks

Arbitration is often attractive to international franchisors because it allows the parties to select the tribunal, seat of arbitration, procedural rules and, to a certain extent, the language of the proceedings.

The ability to appoint arbitrators with experience in franchising, intellectual property, distribution or other relevant commercial fields can be particularly valuable in technically complicated disputes.

Confidentiality is another important consideration. Arbitration is generally more private than court litigation, although the precise level of confidentiality depends on the applicable law and institutional rules. For a franchisor, this can help protect information concerning business models, pricing, expansion strategies, customer data and proprietary systems.

The UAE has a dedicated federal arbitration framework under Federal Law No. 6 of 2018 on Arbitration. The law provides, among other things, that where a valid arbitration agreement covers the dispute, a court may dismiss the court action if the respondent invokes the arbitration agreement in accordance with the statutory requirements.

This makes the drafting of the arbitration agreement particularly important. The parties should not assume that simply inserting the word "arbitration" into a contract will resolve every procedural question.

The Enforcement Question

For cross-border franchise arrangements, enforcement may ultimately be more important than the initial forum.

A franchisor may be based in one country, the franchisee in another and the franchise business in a third. A favourable decision has limited commercial value if it cannot be enforced efficiently against assets located elsewhere.

Arbitration can have an important advantage in this context because international enforcement is supported by the New York Convention, to which the UAE is a party. The Convention establishes a framework for recognition and enforcement of foreign arbitral awards, subject to its conditions and exceptions. United Nations materials also record UAE court decisions concerning the New York Convention.

That does not mean an arbitral award is automatically enforceable everywhere. Enforcement can still involve court proceedings and questions concerning jurisdiction, public policy, due process and the validity of the arbitration agreement.

Nevertheless, for a multinational franchise network, the possibility of obtaining an award capable of recognition in multiple jurisdictions can be a significant strategic advantage.

Arbitration is Not Always Cheaper

One common assumption is that arbitration is necessarily quicker and less expensive than litigation. That is not always the case.

Arbitration involves tribunal fees, institutional fees, legal costs and other expenses. A complex three-member tribunal can become expensive, particularly where the dispute involves extensive documentary evidence and expert testimony.

Franchise disputes can also become procedurally complicated if multiple agreements contain different dispute-resolution clauses. A franchisor might have one arbitration clause in the franchise agreement, another mechanism in a development agreement and separate arrangements with suppliers. The result can be jurisdictional arguments before the substantive dispute is even addressed.

Court proceedings, by contrast, may provide a more established procedural structure and, depending on the jurisdiction and value of the claim, may prove more economical.

The correct conclusion is therefore not that arbitration is cheaper than litigation. Rather, the economics depend on the dispute, the jurisdiction, the contractual structure and the remedies required.

Confidentiality Versus Transparency

Confidentiality can be particularly important in franchise disputes. A dispute may reveal sales figures, royalty structures, customer information, expansion plans, proprietary manuals or allegations concerning breaches of operating standards. A franchisor may not want such information entering the public domain, while a franchisee may have similar concerns about commercially sensitive information.

Arbitration generally offers a more private environment, although confidentiality should be addressed expressly in the agreement or through the applicable institutional rules rather than simply assumed.

Litigation, meanwhile, can provide greater transparency and the authority of a public judicial system. In some disputes, that may be advantageous, particularly where the parties want a judicial precedent or where questions of public law and statutory rights are involved.

The Importance of the Arbitration Clause

If arbitration is selected, the arbitration clause must be drafted with precision. The agreement should identify the disputes covered by arbitration, the seat of arbitration, the applicable procedural rules, the number and method of appointment of arbitrators, the language of proceedings and the governing substantive law.

The parties should also consider whether arbitration should be administered by an institution or conducted on an ad hoc basis.

The choice of seat is particularly important because it determines the legal framework governing the arbitration and the supervisory courts. It should not be confused with the physical location of hearings.

Equally important is ensuring consistency between the arbitration clause and other contracts forming part of the franchise structure. Poor coordination can create parallel proceedings and jurisdictional disputes.

When Court Proceedings May Be Better

Despite the attractions of arbitration, litigation may be the better option in certain franchise disputes. If urgent judicial intervention is required, parties should examine what interim or protective measures are available through the chosen mechanism. Although arbitration laws can provide mechanisms for interim relief and courts can have supporting powers, the practical route can depend heavily on the circumstances.

Litigation may also be preferable where the dispute involves parties who have not agreed to arbitrate or where the central issues concern statutory rights that cannot effectively be resolved through private arbitration.

The location of assets should also influence the decision. If virtually all relevant assets and evidence are located in one jurisdiction, a local court may provide a more straightforward enforcement route.

A Hybrid Approach May Work

Franchise agreements do not necessarily have to choose between negotiation, mediation, arbitration and litigation as mutually exclusive concepts.

A tiered dispute-resolution mechanism can require senior management negotiations first, followed by mediation and, if those efforts fail, arbitration or litigation.

Such a structure can give the parties an opportunity to preserve their commercial relationship before resorting to a binding adjudicative process. That is particularly relevant to franchising, where the parties may need to continue working together even after a disagreement.

The UAE's official government platform recognises mediation and other alternative methods alongside litigation and arbitration as mechanisms for resolving commercial disputes.

Choosing the Right Mechanism

There is no universal answer to whether franchise disputes should be resolved through litigation or arbitration.

For a domestic franchise with assets and operations concentrated in one jurisdiction, court litigation may offer a practical and cost-effective solution. For an international franchise network involving multiple jurisdictions, arbitration may offer greater flexibility, privacy and potential enforcement advantages.

The decision should therefore be made when the franchise agreement is negotiated — not after the relationship has broken down.

A well-designed dispute-resolution provision should consider the parties' jurisdictions, governing law, location of assets, likely remedies, confidentiality requirements, costs, enforcement strategy and the possibility of involving third parties.

Ultimately, the strongest franchise agreement is not one that assumes a dispute will never happen. It is one that anticipates how the dispute will be handled when the commercial relationship comes under pressure.

For franchisors and franchisees, choosing between litigation and arbitration is therefore not merely a procedural decision. It is a strategic decision about how much control the parties retain over one of the most consequential stages of their business relationship.

Franchise relationships are built around detailed contracts that define how a business operates, what the franchisee must pay, how the brand is protected and what rights the franchisor can exercise. But as markets, regulations, technology and consumer expectations change, an important question often arises: Can a franchisor change the terms of a franchise agreement?

The answer depends largely on the wording of the agreement, the nature of the proposed change and the law governing the relationship.

Franchisors commonly need some flexibility to update operating standards, introduce new technology, modify procedures or maintain consistency across a franchise network. Franchise agreements may therefore give them discretion to make certain changes without obtaining individual consent from every franchisee.

That discretion, however, is not necessarily unlimited. A franchisor seeking to change fundamental commercial terms, impose substantial new financial obligations or alter rights that were expressly agreed in the original contract may need a stronger contractual or legal basis.

For franchisees, the distinction between a permitted operational change and an unauthorised amendment can be significant. For franchisors, exceeding contractual powers can lead to disputes, claims for breach of contract or other legal consequences.

What Does the Franchise Agreement Allow?

The starting point is always the franchise agreement itself. A franchise agreement is a legally binding contract that normally establishes the rights and obligations of both parties. It may cover the initial franchise fee, royalties, marketing contributions, territory, intellectual property, operating standards, training, renewal, termination and dispute resolution.

Many franchise agreements also contain provisions giving the franchisor a degree of flexibility. These provisions may allow changes to operating manuals, brand standards, technology, reporting procedures or other aspects of the franchise system.

The precise wording matters. A clause allowing the franchisor to update operational procedures is different from a clause allowing it to alter financial obligations. Likewise, a provision permitting changes to brand standards does not necessarily give the franchisor the power to rewrite the entire commercial bargain.

Before implementing a change, the franchisor should therefore identify the contractual provision that is said to authorise it and determine whether the proposed action falls within its scope.

Can a Franchisor Introduce New Operational Standards?

Operational standards are among the areas where franchisors commonly retain discretion. The franchise model depends heavily on consistency. Customers expect the same brand identity, service standards and, in many cases, products and customer experience across different franchise locations.

A franchisor may therefore need to introduce new requirements during the life of the agreement. A restaurant franchisor, for example, may require franchisees to adopt updated food safety procedures, packaging, menus or point-of-sale technology. A retail franchisor may introduce new store layouts, digital systems or customer-service requirements.

Such changes may be permitted where the agreement gives the franchisor authority to update its operating standards.

The issue becomes more complicated when an operational change requires significant expenditure. A requirement to replace a software system may be relatively routine, while an unexpected demand for a major store refurbishment could impose a substantial financial burden.

Whether such a requirement is enforceable will depend on the contract and applicable law, as well as the nature and extent of the change.

What About New Fees and Financial Obligations?

Changes involving money are generally more sensitive. A franchise agreement may specify the royalties, advertising contributions and other fees payable by the franchisee. It may also contain mechanisms allowing certain charges to be adjusted periodically.

A franchisor cannot necessarily assume that such a provision permits it to introduce any new fee it considers commercially appropriate.

For example, a contract might allow an advertising contribution to be adjusted according to an agreed formula. That is different from introducing an entirely new charge that was not contemplated by the agreement.

The distinction can be particularly important where a proposed fee has a significant impact on the franchisee's profitability.

Franchisees should examine the contractual basis for any new charge, including whether the agreement specifies an amount, calculation method, adjustment mechanism or purpose for the payment.

Where the contract does not provide a clear basis for the new obligation, the franchisor may need the franchisee's agreement to amend the contract.

Can a Franchisor Change the Franchise Manual?

Franchise agreements frequently incorporate an operating or procedures manual by reference. This arrangement can give franchisors considerable flexibility because operating manuals can be updated more easily than the underlying franchise agreement.

Businesses may need to revise procedures in response to changes in technology, legislation, safety requirements or consumer expectations. A franchisee may therefore be contractually required to comply with an updated manual.

But incorporating a manual into a franchise relationship does not necessarily give the franchisor unlimited authority.

A provision allowing the franchisor to update operational procedures should not automatically be interpreted as permission to introduce fundamentally different financial or commercial obligations.

For example, updating customer-service procedures may fall within the expected scope of an operating manual, whereas introducing a substantial new payment obligation through the manual could raise a different contractual question. The precise wording of the agreement is therefore critical.

When Does a Change Become a Contractual Amendment?

Not every change to a franchise business amounts to an amendment of the franchise agreement. Some changes may simply implement rights that already exist under the contract. Others may alter the parties' agreed rights and obligations and therefore require a formal amendment.

A change to a franchisee's territory, for example, could affect a fundamental contractual right. Similarly, changing the duration of the agreement, royalty structure or termination rights could amount to a material alteration of the original bargain.

Where the franchisor already has an express contractual power to make a particular change, a separate amendment may not be necessary. Where that authority does not exist, however, the parties may need to agree to a variation.

The distinction can become a source of disputes when one party considers a change to be an operational requirement while the other considers it a contractual amendment.

Are There Limits on Contractual Discretion?

Even where a franchise agreement gives the franchisor discretion, that discretion may be subject to limits.

The applicable rules differ between jurisdictions. Courts may consider the language of the contract, the purpose of the relevant provision and the circumstances in which the discretion was exercised.

A franchisor should therefore avoid assuming that a broadly drafted discretionary clause provides unrestricted authority to make any change it wishes.

Other areas of law may also be relevant. Depending on the jurisdiction, franchise relationships can be affected by competition law, consumer protection legislation, commercial agency rules, franchise-specific regulations and other mandatory legal requirements. A contractual provision may not be capable of overriding a mandatory statutory rule.

What Happens If a Franchisee Refuses the Change?

A franchisee faced with a new requirement should first determine whether the agreement already requires compliance. If the requirement falls within the franchisor's contractual authority, refusing to comply could potentially constitute a breach of contract. Depending on the agreement and applicable law, this could result in a formal notice, enforcement proceedings or, in serious cases, termination.

The position may be different if the franchisor is attempting to impose an obligation that is not supported by the agreement.

In such circumstances, the franchisee may have grounds to challenge the requirement or request a formal amendment rather than simply accepting the change.

Both parties should exercise caution before treating non-compliance as a contractual default. Establishing the legal basis for the change should come first.

How Should Changes Be Documented?

Clear documentation can reduce the risk of disputes. Where a franchisor has the contractual authority to introduce a change, it should generally communicate the new requirement clearly and identify the relevant contractual provision.

The notice should explain what is changing, why the change is being introduced where appropriate, and when it will take effect.

Where the change requires the franchisee's consent, the parties should consider recording the agreement through a formal written amendment.

Documentation is particularly important where changes affect fees, investment requirements, territory, intellectual property, renewal rights or termination provisions.

A clear record can also help establish whether the change was imposed under an existing contractual power or agreed as a variation.

What Should Franchisees Check Before Accepting a Change?

A franchisee receiving a proposed change should not assume that it is automatically binding. Several questions should be considered.

First, does the franchise agreement expressly permit the change? Second, is the proposal genuinely operational, or does it alter a fundamental commercial term? Third, does the agreement specify a procedure for introducing such changes? Fourth, will the change create additional costs or financial obligations? Fifth, are there statutory or regulatory restrictions that could affect the franchisor's ability to impose it? Finally, what are the contractual consequences of refusing to comply?

Reviewing these issues can help a franchisee distinguish between a routine operational update and a potentially significant contractual variation.

What Should Franchisors Consider Before Making Changes?

Franchisors also need to approach contractual flexibility carefully. Before implementing a new requirement, they should identify the precise contractual authority on which they intend to rely and assess whether the proposed change falls within that authority.

The commercial impact should also be considered. A relatively minor administrative change is likely to present different issues from a requirement that forces franchisees to make substantial investments.

Where the contractual position is unclear, obtaining the franchisee's consent through a formal amendment may provide greater certainty than relying on a broadly worded discretion clause.

Franchisors should also ensure that changes are communicated consistently and that franchisees are given sufficient information to understand their new obligations.

The Importance of Careful Drafting

Many disputes concerning contractual changes can be reduced through careful drafting at the beginning of the franchise relationship.

A well-drafted agreement should distinguish between matters that the franchisor can change unilaterally and those requiring the franchisee's consent.

It should also address how operating standards, technology, equipment, refurbishment requirements and fees may evolve during the term.

For franchisees, these provisions deserve close attention during negotiations. The degree of contractual flexibility granted to the franchisor can have a significant effect on the franchisee's costs and business planning over the life of the agreement.

For franchisors, clearly defined powers can provide the flexibility needed to protect and develop the brand while reducing uncertainty about the limits of their authority.

Conclusion

Franchise businesses need to adapt as markets, regulations and customer expectations change. Franchisors therefore commonly retain powers allowing them to update operational standards and maintain consistency across their networks.

But contractual flexibility is not necessarily a licence to rewrite the franchise agreement. Changes to fundamental commercial terms, particularly fees and other financial obligations, may require specific contractual authority or the franchisee's consent. Mandatory laws can impose additional restrictions, while disputes may arise if a franchisor exercises contractual discretion beyond its intended scope.

The key questions are therefore straightforward: What does the franchise agreement permit? What type of change is being proposed? And what procedure does the contract require?

For both franchisors and franchisees, answering those questions before a change is implemented can help preserve the commercial relationship and reduce the risk of costly contractual disputes.

Franchising can offer a business a faster route to expansion, allowing it to enter new markets without funding every outlet itself. But turning a successful business into a successful franchise system requires more than a popular product, a recognisable brand or a profitable first outlet.

A company considering becoming a franchisor must be able to demonstrate that its business model can be replicated by independent operators while maintaining consistent standards. It must also have the intellectual property, contractual framework, operating systems and support infrastructure needed to manage a network of franchisees.

The distinction is important. A business may be commercially successful without being ready to franchise.

Before offering franchises, companies should assess whether their operations, finances, brand and management systems are sufficiently mature to support expansion through third parties.

A Proven and Replicable Business Model

The first question for a prospective franchisor is whether the business has a proven model.

A business that depends heavily on its founder's personal relationships, individual expertise or informal methods may struggle to reproduce its success elsewhere. Franchisees need a system that can be understood, followed and implemented without the constant involvement of the original owner.

Ideally, the business should have operated successfully for a sufficient period to establish that its products or services have sustained market demand.

The model should also be capable of being replicated across different locations. This means identifying the factors that genuinely drive profitability, including pricing, suppliers, staffing, customer acquisition, premises, technology and operating procedures.

A franchisor should be able to explain not only what makes its business successful, but how that success can be reproduced.

Brand Strength Matters

Franchisees are generally buying more than an operating system. They are also investing in the reputation and commercial value of the franchisor's brand.

A company therefore needs to consider whether its brand has sufficient strength to attract customers and franchise investors.

Brand value can come from customer loyalty, market recognition, reputation, distinctive products, service quality or a combination of these factors. However, a strong local reputation does not automatically mean a business is ready for national or international franchising.

The company should understand its target franchise markets and determine whether its brand proposition can be adapted without losing its identity.

Trademark protection is particularly important. A franchisor that allows franchisees to operate under its brand must have clear ownership and control of the relevant intellectual property.

Intellectual Property Must Be Protected

Intellectual property is one of the central assets of a franchise system. This can include trademarks, trade names, logos, copyright, designs, domain names, software, recipes, business methods and trade secrets, depending on the nature of the business.

Before franchising, the company should establish who owns these assets and whether they are adequately protected in the jurisdictions where the franchise network will operate.

Trademark registrations should be reviewed carefully, particularly where international expansion is contemplated. A franchisor may discover that its preferred brand name is unavailable or already protected by another party in a target market.

Confidential information also requires protection. Franchisees may receive access to operating methods, supplier information, pricing strategies, customer data and other commercially sensitive material.

Franchise agreements and related confidentiality provisions should therefore establish clear rules governing the use and protection of intellectual property during and after the franchise relationship.

Systems Should Not Exist Only in The Founder's Head

One of the biggest tests of franchise readiness is whether the company's operations have been properly documented. An owner may know instinctively how the business should operate, but that knowledge needs to be converted into systems that a franchisee can follow.

This can include procedures covering recruitment, training, purchasing, inventory, customer service, sales, accounting, health and safety, technology, quality control and marketing.

The more dependent the business is on undocumented knowledge, the greater the risk that different franchisees will operate differently.

A franchise system should therefore establish clear standards and measurable processes before expansion begins.

The Franchise Operations Manual

The operating manual is often one of the most important documents within a franchise system. It should translate the company's business model into practical instructions for franchisees and their employees.

Depending on the business, the manual may cover everything from opening and closing procedures to customer service standards, product preparation, branding, staff training, technology and reporting requirements.

The manual should not simply describe how the founder prefers the business to operate. It should provide a consistent operational framework that can be updated as the franchise system develops.

A franchisor should also have mechanisms for ensuring that franchisees follow the required standards.

Profitability and Financial Transparency

A business does not necessarily have to be exceptionally large before it can franchise, but it needs a credible economic model.

Potential franchisees will want to understand the investment required, expected operating costs, revenue assumptions, ongoing fees and potential returns.

The franchisor should therefore have reliable financial information demonstrating how the underlying business performs.

The economics must also work for both sides. If franchisees cannot generate sustainable returns after paying royalties, marketing contributions, rent, staff costs and other expenses, the franchise network is unlikely to remain healthy.

Franchising should not be used simply as a way to obtain upfront fees from investors or to solve cash-flow problems within the original business. A sustainable franchise model should create value for both the franchisor and its franchisees.

Support Infrastructure is Essential

A franchisor's responsibilities do not end when a franchise agreement is signed. Franchisees typically require assistance with site selection, launch planning, training, marketing, technology, procurement, operations and ongoing performance.

The franchisor must therefore have sufficient people and resources to provide that support.

This can become a significant challenge for rapidly growing businesses. A company may have the financial capacity to sell dozens of franchises but lack the personnel to train and monitor dozens of franchisees.

Growth should therefore be matched with infrastructure. The company should determine who will manage franchise recruitment, onboarding, training, field support, compliance, marketing and franchisee relations before the network expands significantly.

Franchise Agreements and Legal Structure

Once a company decides to franchise, its legal framework becomes critical. The franchise agreement should clearly define the rights and obligations of both parties. Depending on the structure and applicable law, issues can include franchise fees, royalties, territory, intellectual property rights, training, marketing contributions, supply arrangements, performance standards, renewal, transfer, termination and post-termination obligations.

The franchisor should also consider whether the franchise structure complies with the laws of each market in which it plans to operate.

Different jurisdictions can impose different requirements concerning franchise disclosure, registration, competition law, consumer protection, intellectual property, employment, taxation and dispute resolution.

A franchise model designed for one jurisdiction may therefore require adjustments before it is introduced elsewhere.

Is the Management Team Ready?

Franchising changes the nature of a business. An owner who previously managed employees and company-owned outlets may suddenly become responsible for working with independent business owners who have their own commercial interests and expectations.

This requires a different management approach. A franchisor needs the ability to select suitable franchisees, communicate standards, resolve disputes and maintain relationships across the network.

It must also be prepared to enforce its standards consistently. Allowing one franchisee to ignore brand or operational requirements can create problems for the entire network.

When Should a Business Franchise?

There is no single revenue figure, number of outlets or period of operation that automatically makes a company ready to franchise.

The better test is whether the business can demonstrate repeatability, profitability, brand value, operational discipline and scalability.

Before taking the next step, a company should be able to answer several practical questions.

Can an independent operator reproduce the business without relying on the founder? Are the company's intellectual property rights protected? Are the operating procedures documented? Does the franchisee have a realistic path to profitability? Can the franchisor provide training and continuing support? Are its contracts and legal structures ready for expansion? If the answer to these questions is no, expansion may need to wait.

Franchising is a Business Model, Not Just an Expansion Strategy

The attraction of franchising is clear: it can allow a company to expand its footprint while franchisees provide much of the capital and local management.

But the model also creates responsibilities. A company that franchises too early can damage its brand, frustrate franchisees and create legal and operational disputes. Rapid expansion without adequate systems can also make it difficult to maintain consistent customer experiences.

The strongest franchise systems are generally built on businesses that have already demonstrated that their model works and can be systematically transferred to others.

Franchise readiness is therefore less about how successful a business looks today and more about whether that success can be reproduced tomorrow.

For companies considering franchising, the objective should not simply be to sell the first franchise. It should be to build a sustainable system in which the franchisor, franchisees and customers can grow together.

A franchisee may build a profitable business, establish a loyal customer base and eventually decide it is time to sell. But unlike the owner of an independent business, a franchisee may not be free to choose its buyer.

Franchise agreements commonly contain transfer restrictions that allow franchisors to control, or at least influence, the sale or transfer of a franchise. These provisions are intended to protect the brand and ensure that new franchisees meet the standards expected across the network. For franchisees, however, they can have a direct impact on the value of the business and the ability to exit on their own terms.

The issue can arise in several ways. A franchisee may want to sell the entire business, transfer the franchise agreement to another operator, assign its contractual rights or sell shares in the company that owns the franchise. Depending on the wording of the agreement, any of these transactions could require the franchisor's prior written consent. That makes the transfer clause one of the most commercially important provisions in a franchise agreement.

Franchisors generally have a strong interest in controlling who operates under their brand. A franchise network depends on consistency in areas such as customer service, product quality, marketing, operational standards and compliance. A purchaser who lacks the necessary financial resources or management experience could create risks not only for the individual outlet but for the wider brand.

Franchising is built on a fundamental commercial bargain. The franchisor provides a recognised brand, established business model, intellectual property, training and operational support, while the franchisee contributes capital, local knowledge and the day-to-day effort required to operate the business.

In theory, the relationship is mutually beneficial. In practice, however, the negotiating positions of the two parties can be very different.

A large international franchisor may have an established agreement that is used across several jurisdictions, backed by experienced lawyers, extensive market data and considerable negotiating power. The prospective franchisee, even if commercially experienced, may have little ability to alter the core terms.

This raises an increasingly important policy question: how far should franchise law go in protecting franchisees?

Should sophisticated commercial parties be free to negotiate their own bargains, with the risks allocated according to the contract? Or should the law intervene where there is a significant imbalance in bargaining power?

The answer is not straightforward. Excessive regulation could undermine the flexibility that makes franchising attractive. Too little protection, however, could leave franchisees exposed to contractual obligations that they had little realistic opportunity to negotiate.

The Bargaining Power Problem

The starting point of the franchisee protection debate is bargaining power.

Franchise agreements are often presented as commercial contracts between independent parties. But equality on paper does not necessarily mean equality at the negotiating table.

A major franchisor may operate hundreds or thousands of outlets and have considerable experience dealing with franchise disputes, renewals, defaults and terminations. A new franchisee may be investing a substantial portion of their personal or corporate capital into a single outlet.

The franchisee may therefore face a difficult choice: accept the franchisor's standard terms or walk away from the opportunity altogether.

That does not automatically make the agreement unfair. Commercial parties routinely enter contracts with different levels of bargaining strength. Sophisticated franchisees may also have access to lawyers, accountants and financial advisers.

The policy challenge is determining when a difference in bargaining power becomes sufficiently serious to justify legal intervention.

Should Disclosure Be Mandatory?

One of the strongest arguments for franchisee protection is mandatory disclosure. Before committing significant capital, a prospective franchisee should understand what it is actually buying and what obligations it is assuming.

A robust disclosure regime could require franchisors to provide material information about the franchise system, including fees, royalties, initial investment requirements, ongoing costs, litigation history, termination provisions, renewal conditions and significant financial obligations.

Disclosure could also address the commercial realities behind the business model. For example, a franchisee may be attracted by a successful brand without fully understanding the costs of property, fit-out, staffing, technology, supply arrangements and mandatory refurbishment.

The purpose of disclosure should not be to guarantee commercial success. No law can eliminate business risk. Instead, it should ensure that the franchisee enters the relationship with sufficient information to make an informed decision.

At the same time, disclosure requirements must be proportionate. Excessive paperwork can increase compliance costs without necessarily improving decision-making.

The Question of Unfair Contract Terms

Another major issue is whether franchise agreements should be subject to stronger scrutiny for unfair contract terms.

Franchise agreements can contain extensive provisions covering everything from branding and operating procedures to supply chains, audits, intellectual property and termination.

Some restrictions are commercially necessary. A franchisor must be able to protect the consistency and reputation of its brand.

Problems arise when contractual provisions place disproportionate risks on the franchisee while preserving broad discretion for the franchisor.

For example, a clause giving one party extensive rights to alter operational requirements, impose additional costs or terminate the agreement may deserve closer scrutiny if the franchisee has little corresponding protection.

The difficulty is defining "unfair". A term that appears harsh in isolation may be commercially justified when considered alongside the franchisor's investment in the brand, training, technology and support. The law should therefore be cautious about replacing commercial judgement with regulatory judgement.

Termination: The Ultimate Source of Risk

Few contractual issues are more important to a franchisee than termination rights. A franchisee may spend years building a customer base and investing in premises, equipment, staff and local marketing. If the agreement is terminated prematurely, much of that investment may be lost.

Franchisors, however, need meaningful termination rights. A franchise system cannot function effectively if a franchisee is permitted to damage the brand, breach operational standards, misuse intellectual property or engage in serious misconduct without consequences.

The real question is whether termination should always be immediate or whether franchisees should receive an opportunity to remedy breaches.

A balanced framework could distinguish between serious breaches requiring immediate action and remediable breaches for which a reasonable cure period should normally apply.

Transparency is equally important. Franchisees should understand the circumstances in which termination can occur before they commit their capital.

The Capital Expenditure Dilemma

Capital expenditure is another area where franchisee protection becomes particularly complicated. Franchisors may require franchisees to refurbish outlets, replace equipment, adopt new technology or upgrade premises to maintain brand standards.

From the franchisor's perspective, these investments may be essential. Consumer expectations change, competitors modernise and technology evolves.

For a franchisee, however, an unexpected refurbishment requirement can transform an apparently profitable business into a heavily capital-intensive operation.

The law could therefore encourage greater transparency around foreseeable capital expenditure. Franchise agreements could identify expected investment cycles and provide reasonable notice of major upgrades.

But regulation should not prevent legitimate business development. A franchise brand that cannot require its network to evolve may eventually become commercially obsolete.

Who Controls the Marketing Fund?

Marketing contributions can also create tension. Franchisees may be required to contribute a percentage of revenue to a central marketing fund. The rationale is straightforward: collective advertising can strengthen the brand and benefit the entire network.

The concern is whether franchisees can determine how those funds are spent and whether they receive sufficient information about expenditure.

A reasonable regulatory approach may focus less on controlling the amount of the contribution and more on transparency and accountability.

Franchisees could be entitled to information about how the fund is administered, the categories of expenditure and whether the franchisor uses the fund for purposes unrelated to network marketing. This would preserve the franchisor's ability to manage the brand while giving franchisees greater confidence that their contributions are being used for their intended purpose.

Renewal Should Not Be an Afterthought

For many franchisees, the real value of the business emerges over time. They build a customer base, develop employees and establish a presence in the local market. Yet the end of the initial franchise term can create significant uncertainty.

A franchisee may have invested heavily in a business only to discover that renewal depends on conditions that were not sufficiently clear at the beginning.

Should the law provide a renewal right? There are arguments on both sides.

A mandatory renewal right could protect franchisees from losing established businesses without adequate justification. But it could also restrict a franchisor's ability to restructure its network, introduce new formats or replace underperforming operators.

A more balanced approach may require renewal conditions to be clearly disclosed from the outset, rather than guaranteeing renewal in every case.

Should Franchisors Owe a Duty of Good Faith?

The concept of good faith has become an important part of the wider debate over commercial relationships.

A good-faith obligation could prevent parties from exercising contractual rights in an abusive, dishonest or opportunistic manner.

For franchise relationships, this could be particularly significant because the parties remain commercially interdependent throughout the life of the agreement.

A franchisor may technically possess a contractual right to take a particular action, but exercising that right purely to obtain an unexpected commercial advantage could raise questions about fairness.

Yet good faith should not become a vague mechanism for rewriting contracts. If every difficult commercial decision can be challenged as "bad faith", contractual certainty suffers.

Any statutory good-faith obligation should therefore be carefully defined, particularly in sophisticated commercial relationships.

Should Governments Intervene?

This brings the debate to its central question: how much government intervention is appropriate? There are broadly three possible approaches.

The first is freedom of contract. Under this model, sophisticated parties should generally be bound by the agreements they negotiate. Legal intervention should be limited to fraud, illegality and clearly established forms of contractual misconduct.

The second is targeted protection. Governments could impose disclosure requirements, regulate particular unfair practices and establish minimum standards for termination, renewal and transparency without controlling the commercial bargain itself.

The third is prescriptive regulation, under which legislation would impose extensive mandatory terms on franchise relationships. The middle approach may offer the most sustainable solution.

Franchising is too diverse for a one-size-fits-all regulatory model. A small local franchise and a sophisticated multinational franchise network may have completely different risk profiles.

The law should therefore focus on transparency, informed consent and protection against genuinely abusive practices rather than attempting to guarantee commercial outcomes.

Protecting Franchisees Without Weakening Franchising

There is also an important danger in over-regulation. Franchising depends on investment. If franchisors believe that regulations make it excessively difficult to enforce standards, terminate problematic relationships, recover costs or restructure their networks, they may become less willing to franchise. That could ultimately reduce opportunities for entrepreneurs.

At the same time, assuming that every franchisee is a sophisticated investor capable of protecting themselves ignores the reality of many franchise relationships.

A franchisee may be commercially experienced but still have substantially less negotiating power than an international brand with a standardised legal and operational system.

The objective of franchise regulation should therefore not be to make franchisees risk-free. Entrepreneurs must continue to bear genuine business risk.

The objective should be to ensure that those risks are visible, understood and allocated through a reasonably fair contractual process.

A More Balanced Franchise Model

The future of franchise regulation is likely to revolve around balance rather than choosing between complete contractual freedom and heavy government control.

A sensible framework could combine mandatory pre-contractual disclosure, greater transparency around fees and marketing funds, clearer termination procedures, reasonable notice for significant capital expenditure and safeguards against genuinely abusive contractual practices.

It could also encourage sophisticated franchisees to obtain independent legal and financial advice before signing.

Ultimately, franchise law should recognise an important distinction: protecting a franchisee from unfair conduct is not the same as protecting a franchisee from commercial failure.

A franchisee who enters a properly disclosed agreement, understands the investment required and takes an informed commercial risk should ordinarily bear the consequences of that risk.

But where critical information is withheld, contractual rights are exercised opportunistically or a franchisee is subjected to obligations that were not reasonably foreseeable, the law has a stronger case for intervention.

The franchisee protection debate is therefore unlikely to be settled by asking whether franchisors or franchisees deserve more protection.

The better question is whether the legal framework creates a fair and transparent commercial relationship while preserving the flexibility that allows franchising to grow.

That balance will become increasingly important as franchise networks expand across borders, investments become larger and franchise agreements become more complex.

For policymakers and courts, the challenge is clear: protect the weaker party where necessary, but do not regulate away the commercial freedom that makes franchising work.

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.