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What Are the Rights of Franchise Parties in UAE Law?
What are the rights of the two parties to a commercial franchise contract under UAE law?
1. What is a commercial franchise and its legal nature?
A commercial franchise is an agreement under which the franchisor grants the franchisee the right to carry on a business linked to its trademark, trade name, business model and know-how, in return for financial or non-financial consideration. In the UAE there is no standalone federal law bearing the name “commercial franchise”, so the contract is legally built on the trademark licence and the general rules of contract, and is distinguished from the commercial agency contract, which has its own law.
2. The governing legislative framework in the UAE
Several pieces of legislation combine to govern the franchise contract: foremost is Federal Decree-Law No. 36 of 2021 on Trademarks, which regulates the trademark licence — the heart of the contract; alongside the Civil Transactions Law issued by Federal Law No. 5 of 1985 for the general rules of contract; Federal Decree-Law No. 50 of 2022 issuing the Commercial Transactions Law for the trade name and unfair competition; Federal Decree-Law No. 36 of 2023 on the Regulation of Competition for the limits on restrictive clauses; and Federal Decree-Law No. 11 of 2021 on the Regulation and Protection of Industrial Property Rights for matters relating to know-how.
3. The trademark licence: the heart of the franchise
The owner of a trademark may use it himself, and may license any natural or legal person — one or more — to use it for all or some of the goods or services for which it is registered, unless otherwise agreed. The licence term may not exceed the term prescribed for the protection of the trademark.
A trademark-use licence contract must be written and notarised; recording or registering it in the register is not required, although that may be done at the request of any interested party. Writing and notarisation are a cornerstone for protecting both parties and establishing the limits of their rights.
4. The franchisor's rights and obligations
5. The franchisee's rights and obligations
The franchisee acquires the right to use the mark within the licensed scope and according to the terms of the contract. The law protects him against arbitrary restrictions: no restrictions may be imposed on him that do not arise from the rights conferred by registration of the mark or that are not necessary to preserve those rights.
The permitted restrictions are confined to: defining the geographical area or the term of use of the mark; requirements of effective quality control; and the franchisee's obligation to refrain from anything that harms the mark. The franchisee also has the right to object to a request to cancel the licence registration in accordance with the prescribed procedures.
“At its core the franchise is a trademark licence and a relationship of mutual trust; whoever sets the limits of exclusivity and quality, documents the contract in writing, and distinguishes it from agency, protects his venture before any dispute begins.”
6. Restrictive clauses and the limits of competition
Franchise contracts often contain exclusivity clauses and a geographical scope. Here the competition law intervenes: agreements between establishments that would harm, limit or prevent competition are prohibited — in particular sharing markets or allocating customers on the basis of geographical areas or distribution centres, or hindering establishments from entering the market. The abuse of a dominant position is likewise prohibited. Exclusivity and scope clauses must therefore be drafted carefully, balancing the protection of both parties with freedom of competition.
7. Termination of the contract and dispute resolution
A franchise contract ends upon the expiry of its term or upon rescission in accordance with the general rules of contract. The licence registration is cancelled at the request of the owner of the mark, the licensee, or the agent of either, after submitting proof that the contract has ended or been rescinded, with notice to the other party and its right to object. Disputes are resolved as agreed between the parties — by arbitration or litigation — applying the general rules of liability and compensation.
- Federal Decree-Law No. 36 of 2021 on Trademarks — Articles 30, 31, 32, 33 and 34 on the trademark licence.
- Federal Decree-Law No. 36 of 2023 on the Regulation of Competition — Articles 5 (restrictive agreements) and 6 (abuse of a dominant position).
- Federal Law No. 5 of 1985 issuing the Civil Transactions Law and its amendments — the general rules of contract.
- Federal Decree-Law No. 50 of 2022 issuing the Commercial Transactions Law — the trade name and unfair competition.
- Federal Decree-Law No. 11 of 2021 on the Regulation and Protection of Industrial Property Rights — know-how and industrial property rights.
- Federal Law No. 3 of 2022 on the Regulation of Commercial Agencies — for distinguishing franchise from commercial agency.
