The franchise sector in Saudi Arabia is experiencing rapid growth, driven by Vision 2030 and its focus on empowering entrepreneurs and localizing global brands. However, this expansion has also led to disputes between franchisors and franchisees, often because of breach of contract terms or lack of understanding of the Saudi Franchise Law.
This article outlines the legal framework governing franchise disputes and highlights the key provisions of the Saudi Franchise Law as issued by the Experts Authority.
Saudi Franchise Law (Experts Authority)
The Saudi Franchise Law was issued under Royal Decree No. (M/22) dated 9/2/1441H. It is considered one of the most important modern commercial regulations, aiming to ensure transparency and balance between franchisors and franchisees.
According to the Experts Authority at the Council of Ministers, franchisors must provide full disclosure of all material information before signing the agreement. The law also defines dispute resolution mechanisms, including amicable settlement, arbitration, or litigation, depending on the contract terms.
Conditions for granting a franchise
To grant a franchise, the law requires:
- The franchisor must have operated the business for at least one year in more than one location
- Providing a disclosure document covering brand details, experience, support, expected returns, and risks
- Registering the franchise agreement with the Ministry of Commerce within 90 days
These requirements protect franchisees from unfair or unstable business arrangements.
Franchise agreement in Saudi Arabia
A franchise contract must include:
- Identification of both parties
- Detailed description of the trademark and granted rights
- Contract duration and renewal/termination terms
- Rights and obligations of each party
- Dispute resolution mechanism (settlement, arbitration, or courts)
- Confidentiality and non-compete clauses
Legal consultation is strongly recommended to ensure compliance and avoid contractual gaps.
Conclusion
Franchise disputes can be complex, especially when contracts are poorly drafted or parties lack legal awareness. However, the Saudi Franchise Law provides a structured framework that reduces risks and ensures fair dispute resolution.
Recommendation
Both franchisors and franchisees should regularly review the law and its implementing regulations, seek legal advice before entering into agreements, and clearly define dispute resolution methods to avoid ambiguity.