The growing of the International Trade  activities all over the world, has led to the existence of the franchise as a new look style in the International Trade, moreover the world trade organization (WTO) has encouraged the spread of such type of trade which secured to open the boarders for the commercial deals between the worldwide countries.

Due to these encouraging factors, we have seen franchise contracts, such as fast food outlets, soft drink, brank clothes, electronics, accessories, and other products and different type of services.

The franchise contract is a mere agency contract, but nevertheless it has its own unique characteristics which should be adhered to by all parties of the franchise contract. It is to be noted that the franchise contract is well recognized by Saudi authority (Minister of commerce) as typical commercial contract (agency contract) and therefore is currently applicable in the Kingdom of Saudi Arabia.

The characteristic of franchise contract:

1. The grant of the franchise right / License.

This right to be give by the franchisor (the owner of the product) to the franchisee, subject to certain conditions as per the contract.

• The owner must be the registered owner of the product (Trade Mark) to be dealt with (otherwise he can not pass a better title)
• This Trade Mark should be registered at the costs of the franchisor in the territory of the franchise (protection of such Trade Mark from any infringement) this is one of the fundamental contractual obligations of the franchisor.
• The territory / geographical area  

This area should be clearly defined, such as the whole Kingdom – part of the Kingdom – certain province, all Gulf stats – part of the Gulf – Middle East

• The type of the granted right / License

Is it exclusive or non – exclusive?  

• The franchise fees (Royalty)

Should be clearly determined – yearly – or quarter, Is there any advance payment? (initial) and thereafter payment of the on-going Royalty the mechanism of the payment of the on-going Royalty should be clearly defined in order to avoid any dispute in the future, because it is the back bone of all the deal.

• The location of the outlets

The section of the location to be by both parties (the proper location is a must to have good access to car parking and to avoid traffic jam ……etc.

• The training of franchisee’s staff (initial training) to determine such training at the costs of the franchisor it is a must to include periodic training and to fix numbers of the trainees, and any other technical assistance (if any).
• The drawing / specification, equipment, layout, menu, logs and all other operational items to be provided by the franchisor (franchise is considered as donkey operation) any franchise outlet of Mcdonlon in the Kingdom or elsewhere in the world is typical and identical to the one in USA.
• The term of the contract

It should be long term due to the fact that the franchisee as an investor should have good time to regain the money he has invested, moreover the franchisee should be aware and caution of the events of the termination.

1. Operating standards and procedures to be clearly defined in the contract (especially the confidential manual)
2. Books – records and control
3. Payment of taxes
4. Advertising and ongoing campaign and its cost.
5. Trade secret and confidential information
6. Termination – applicable law
7. Indemnity

1. Right of franchisee to sub-let

It is remarkable to mention here that Saudi Fisheries Company (SFC) is considered as a pioneer in the franchise field, because it is the first company in the Kingdom to introduce such type of commercial dealings (Oct.15.1991)

It brought an expert in franchise from USA and a well known American Legal firm (GARY, plant, Mooty and Benne H) for the preparation and drafting of its franchise contract, which finally resulted in a proper international unit Franchise Agreement.

I have joined the team of the drafting in my capacity as in-house lawyer of Saudi Franchise Company (1991 – 2003) and defacto it was a very successful attempt / experiment and led to the expansion of the company in remote areas such as Gassim, Hail, Tabok and Jizan by applying the said franchise system, also we worked together with Mr. Al- Amoudi (Retail operation manager of SFC) to solve all the operational problems as well as legal problems and we succeeded to put the system into the right track.

The franchise relationship is based mainly on the fact that the franchisee must be in a good financial status, capable to discharge its obligations, competent to manage the franchise business, because the essence of this business is that the franchisor will allow the franchisee to use its brand, image, good will and reputation to market the goods and services ( the subject matter) of the franchise contract.

The above requirements cast heavy duty on the franchisor to be cautious in selecting the proper franchisee in order not to jeopardize its business, or to invite future disputes.