Abstract
A healthy franchise market needs a legal environment that regulates the orderly development of franchising for the benefit of all involved. The new Saudi Commercial Franchise Legislation (CFL) was introduced in October 2019, and came into force in April 2020, to promote transparency and disclosure of rights and obligations and to afford protection to all the contracting parties. One of the significant changes introduced by the CFL was the obligation of “pre-contractual disclosure”. This article aims to explore and analyse the duty of franchise disclosure as introduced by the CFL, and will compare it best practices from other jurisdictions. The first part of this paper briefly introduces the franchise format, first defining it, and then giving an overview of the franchise regulation in Saudi Arabia. The second part will offer answers to the questions: what is meant exactly by franchise disclosure; why do we need pre-contractual disclosure; and is it alone sufficient to provide a healthy regulatory environment for franchising? In the third part, the key features of the obligation of disclosure, as imposed by the CFL, will be examined in depth.
Highlights
The first part of this paper briefly introduces the franchise format, first defining it, and giving an overview of the franchise regulation in Saudi Arabia
According to Art. 1 of the Saudi’s Commercial Franchise Legislation (CFL), a franchise is defined as: The granting by a person called the franchisor to another person called the franchisee of the right to conduct business—subject of the franchising for its own account linked to the trademark or the trade name owned by the franchisor or licensed to it, providing technical expertise and know-how to the franchisee and determining the manner of operating the franchised business, in exchange for monetary or non-monetary consideration, excluding sums paid by the franchisee to the franchisor in exchange for goods or services
With the introduction of the CFL, Saudi Arabia entered a new arena in the world of franchising, making it a destination for international companies because of its robust economy and the existence of a clear legal environment
Summary
Franchising can most be understood as a business format for distributing goods and services. It has become one of the most successful and wide-. It is estimated that Saudi Arabia businesses have acquired around 50% of the market value of franchises in the Middle East and North Africa, which is approximately worth U.S 30 billion dollars (The Saudi Franchise Expo, 2020). These figures explain the significance of the franchise market today. The purpose of the CFL is to encourage franchise activities in Saudi Arabia by introducing a regulatory framework, that promotes transparency in franchise transactions, ensuring protection for both franchisor and franchisee (The CFL, Art. 2). One of the more significant requirements, if not the principle requirement, introduced by the CFL is that of pre-contractual disclosure, which is imposed upon the franchisor. The second part answers relevant conceptual questions; i.e. what is exactly meant by franchise disclosure? Why do we need pre-sale disclosure? And, is disclosure sufficient in itself to provide a healthy regulatory environment for franchising? the obligation to make this disclosure as described in the CFL, will be discussed in the third part
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