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Insight

Franchisee or Agent? The Risks of Commercial Agency in the U.A.E

One of the biggest risks of doing a franchise deal in the U.A.E (and other parts of the Middle East) is that, unlike English law, U.A.E law does not distinguish between franchisees and commercial One of the biggest risks of doing a franchise deal in the U.A.E (and other parts of the Middle East) is that, unlike English law, U.A.E law does not distinguish between franchisees and commercial agents.

Why is this important?

Certain types of franchisee may be able to register themselves with the UAE Ministry of Economy (the “Ministry”) as registered commercial agents. If a franchisee is successful in its attempt to do this, it will benefit from a number of protections which will override any conflicting provisions in the franchise agreement, including:

  • It can require the franchisor to renew the franchise agreement, unless there are "material reasons" for the franchisor's decision not to renew the agreement;

  • a statutory right to claim compensation following termination or expiry of the agreement;

  • the ability to block imports of registered products and/or the provision of registered services in the U.A.E unless and until the franchisee is removed from the register of commercial agents; and

  • all disputes under the agreement must be resolved in accordance with U.A.E law before the Ministry or in the U.A.E courts on appeal, even if the franchise agreement elects a foreign choice of law.


Who Can Register?

Franchisees which are granted exclusive rights and which are a registered in the U.A.E and are wholly owned by U.A.E nationals may be able to apply for protection.

What Can Franchisors Do?

The risk cannot be eliminated, but it can be reduced and managed by taking certain precautions, including:

  • drafting a "non-registration" clause in the agreement with a robust indemnity;

  • ensuring that the agreement is not notarized and translated by the parties;

  • granting non-exclusive rights; and

  • monitoring and taking preventative action, particularly if the relationship between the parties begins to break down.


The key takeaway point is to ensure that your franchise agreement is reviewed by a specialist lawyer before the deal is done, so that these types of risks can be identified, reduced and managed accordingly.

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