On 8 October 2019, the Council of Ministers of the Kingdom of Saudi Arabia approved the Saudi Commercial Franchise Law under Cabinet Decision No. 122/1441 (the "CFL"), which will take effect in April 2020. Prior to this legislative development, franchise agreements were generally considered to constitute commercial agency agreements governed by the Saudi Commercial Agencies Law.

The CFL will be applicable with respect to all franchises in the Kingdom, including pre-existing franchise arrangements between foreign franchisors and local franchisees, and in large part introduces provisions protective of franchisees, some of which could be opted out in franchise agreements. Among its key provisions, the CFL provides a franchisee with a unilateral option to renew or extend a franchise agreement by providing notice 180 days prior to its expiration.

The Ministry of Commerce and Investment ("MoCI") is expected to release further information with respect to registration procedures, disclosure requirements, implementing regulations and specific exemptions prior to the official enactment of the CFL in April 2020. Within that timeframe, MoCI is also expected to establish an oversight committee, which will work in tandem with a newly established franchise center to enforce the CFL.

As franchise businesses gear up in anticipation of the CFL's official enactment in April 2020, our team in Saudi Arabia is actively monitoring ongoing developments and further substantive requirements as they arise, and we encourage franchisors and franchisees to undertake a renewed assessment of their franchise arrangements in Saudi Arabia.

Below is a high-level overview of key requirements set forth in the CFL.

Overview of Key Franchisor Requirements
Under the CFL, franchisors will be required to:

  • Comply with official government registration and disclosure requirements.
  • Provide franchisees with training and technical support.
  • Provide franchisees with necessary goods and services required for business operation.
  • Ensure that confidential treatment is accorded to franchisee information.
  • Refrain from engaging in any similar franchise activities that may be in competition with their existing franchise activities.

Overview of Key Franchisee Requirements
Under the CFL, franchisees will be required to: 

  • Share key business data (i.e. financials and other related information) with franchisors.
  • Obtain prior approval from franchisors to implement any changes to goods, services or location of operation.
  • Facilitate business inspection by franchisors.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2019. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.