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.