Distribution and franchise agreements are often the foundation of a brand’s entry into the UAE market. When those agreements are based on generic international templates, however, they may fail to address important UAE-specific issues concerning exclusivity, commercial agency registration, termination, compensation, intellectual property and dispute resolution.
The legal position is particularly important because a distribution or franchise arrangement may operate as an ordinary commercial contract, or, if the statutory requirements are satisfied, fall within the registered commercial agency regime under Federal Law No. 3 of 2022 Regulating Commercial Agencies. These are not the same thing, and the consequences can be materially different.
The UAE’s general contractual framework has also changed. Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law came into force on 1 June 2026 and now governs general civil-law contractual principles, subject to more specific legislation where applicable.
This article identifies seven recurring drafting risks and explains how they should be addressed in UAE distribution and franchise agreements.
A poorly drafted UAE distribution or franchise agreement commonly creates risk in one or more of the following areas:
Vague exclusivity and territory definitions. A clause granting “exclusive rights in the Territory” without defining whether the Territory means the whole UAE, specified emirates, particular customer groups or particular sales channels creates avoidable uncertainty. Online sales, marketplaces, government contracts and key accounts should also be addressed expressly where relevant.
Failure to distinguish an ordinary distributorship from a registered commercial agency. Federal Law No. 3 of 2022 has a broad definition of “Commercial Agency”, but the statutory commercial-agency regime does not arise merely because a contract is labelled an agency or because the principal exercises significant commercial control. A commercial agency must satisfy the statutory validity and registration requirements.
Weak termination and renewal clauses. Clauses such as “either party may terminate on reasonable notice” create uncertainty as to notice, cure periods and termination grounds. Where the arrangement is a registered commercial agency, the specific termination and non-renewal rules in Federal Law No. 3 of 2022 must also be considered.
No measurable performance obligations. Without minimum purchases, sales targets, marketing commitments, reporting obligations or other objective KPIs, performance-based enforcement and termination become significantly more difficult.
Incomplete payment and pricing provisions. The contract should identify the invoicing currency, payment timetable, permitted price adjustments, taxes, consequences of late payment and any agreed interest or compensation mechanism that is legally permissible.
Unclear IP licence scope. The agreement should specify exactly which trademarks, trade dress, know-how, digital assets and other IP may be used, by whom, in what territory and for how long, together with clear post-termination obligations.
Uncertain dispute-resolution provisions. The contract should identify the governing law and the agreed forum, whether UAE onshore courts, the DIFC Courts where validly chosen, or arbitration.
Under the new Civil Transactions Law, clear contractual wording is important. The general rule is not that every ambiguity is automatically interpreted “against the drafter”. The Law provides specific principles for contractual interpretation, including consideration of the parties’ common intention where interpretation is required, and a particular protective rule for ambiguous terms in contracts of adhesion.
Exclusivity should be drafted with precision. The Territory may legitimately be the whole UAE, one emirate or several emirates, depending on the commercial arrangement. The agreement should also identify whether exclusivity applies to all products, selected product categories, particular customer segments and particular channels.
Federal Law No. 3 of 2022 defines a Commercial Agency broadly to include representation of a principal under an agency, distribution, sale, offer or concession arrangement for a commission or profit. However, Articles 3 and 4 make registration fundamental: an unregistered commercial agency is not valid under the Law, and a valid Commercial Agency requires a written, documented contract with the original principal and registration in the Commercial Agencies Register.
Where an arrangement is validly registered, the statutory consequences are significant. The Law provides for territorial exclusivity within the registered agency territory and gives the agent commission rights in respect of transactions concluded in that territory, including certain transactions concluded directly by the principal or through others.
Accordingly, a contractual online-sales or direct-sales carve-out should not be treated as automatically effective against the statutory rights of a registered commercial agent. The scope of the registration and the Commercial Agencies Law must be considered separately.
Define whether the Territory is the whole UAE or specified emirates.
Identify any direct-sales, e-commerce, marketplace, government or key-account channels.
Specify whether exclusivity applies to all products or defined product categories.
Tie continued exclusivity to objective performance criteria where appropriate.
Address competing products and multi-brand activity, subject to applicable competition law.
If the arrangement is or may become a registered commercial agency, ensure that contractual exclusivity mechanisms are consistent with the registration and the Commercial Agencies Law.
| Draft Clause | Principal Risk | Better Approach |
|---|---|---|
| “Supplier grants Distributor exclusive rights in the Territory.” | Territory and channels are undefined. | Define the Territory, products, customers and reserved channels expressly. |
| “Franchisor may terminate on reasonable notice.” | Notice and procedure are uncertain. | Specify notice, cure periods and termination grounds, subject to any mandatory statutory regime. |
| “Distributor shall use best efforts to promote the Products.” | Performance is difficult to measure objectively. | Add minimum purchases, revenue targets, reporting obligations or other measurable KPIs. |
| “All disputes shall be resolved amicably.” | No binding dispute mechanism exists if negotiations fail. | Add a clear court or arbitration clause after any agreed negotiation period. |
Termination provisions should first identify whether the agreement is an ordinary commercial contract or a registered Commercial Agency. The distinction is important.
For an ordinary commercial agreement outside the registered Commercial Agency regime, the parties should clearly distinguish:
termination for material breach;
termination following an agreed cure period;
termination for insolvency or other specified events;
termination for convenience, if commercially agreed; and
expiry and non-renewal.
The agreement should specify the form of notice, the address or electronic method for service, the applicable notice period and the consequences of termination.
A registered Commercial Agency is subject to specific statutory rules.
Article 9 of Federal Law No. 3 of 2022 provides circumstances in which the Commercial Agency contract may expire, including expiry of its term, termination in accordance with its contractual terms, agreement of the parties and a final court judgment.
Article 10 regulates termination and non-renewal. Unless the parties agree otherwise, the party seeking early termination under the contractual terms must provide notice not less than one year before the proposed termination date or before the lapse of one half of the contract term, whichever is less. A corresponding statutory notice rule applies to non-renewal.
Article 11 then addresses compensation. Where the contract expires at the end of its term, the agent may, unless there is an express agreement otherwise, claim compensation for damage caused by the expiry. Where termination under the contractual terms causes harm, the affected party may claim compensation for its damage. The agent may also have a compensation claim where it proves that its legitimate activity contributed to substantial success of the principal’s products and that termination deprived it of profit connected with that success.
Accordingly, it is inaccurate to assume that every non-renewal automatically attracts compensation, or that compensation can always be avoided merely by describing non-renewal as something other than “termination”. The contract must be drafted against the wording of Articles 9 to 11.
For ordinary distributorships and franchises, the parties should address:
remaining stock and any sell-down period;
stock repurchase rights or obligations;
de-branding;
cessation of trademark and digital-asset use;
transfer of domain names and social-media accounts where appropriate;
return or destruction of confidential material; and
outstanding payments and customer commitments.
For a registered Commercial Agency, Article 9 also contains specific provisions concerning the transfer of certain agency-related assets to the principal or a new agent at fair value, unless the parties agree otherwise and subject to the statutory conditions. A generic sell-down clause should therefore not be used without considering those provisions.
Objective performance standards are particularly useful in exclusive arrangements. They create a clearer evidential basis for assessing whether the local distributor or franchisee is performing as agreed.
| KPI Category | Example Metric | Measurement Frequency |
| Sales volume | Minimum quarterly purchase of [X] units | Quarterly |
| Revenue | Annual net revenue of AED [Y] | Annually |
| Marketing | Minimum approved local marketing spend | Quarterly |
| Reporting | Monthly sales report by an agreed date | Monthly |
| Customer service | Agreed service-level or satisfaction metric | Periodic |
Depending on the structure of the agreement, possible mechanisms include:
remediation plans following KPI failure;
additional reporting or audit rights;
loss of contractual exclusivity;
rights to appoint additional distributors;
termination following repeated material KPI failure; and
agreed compensation for specified breaches.
Under Article 340 of the new Civil Transactions Law, parties may agree compensation in advance, but such clauses remain subject to the statutory rules governing agreed compensation. They should therefore be drafted as enforceable compensation provisions rather than punitive penalties.
Any right to convert exclusivity to non-exclusive status must also be considered carefully where the arrangement is a registered Commercial Agency, because statutory territorial rights and the Commercial Agencies Register cannot simply be disregarded by a private contractual mechanism.
A common drafting mistake is to treat “agent”, “distributor” and “commercial agent” as interchangeable expressions.
They are not.
A distributor will commonly purchase goods for resale on its own account and bear its own inventory and resale risk. A contractual agent may have authority to act on behalf of a principal under the ordinary law of agency. A registered Commercial Agent under Federal Law No. 3 of 2022 is subject to a separate statutory regime.
The Commercial Agencies Law expressly covers representation under contracts of agency, distribution, sale, offer or concession. However, the statutory regime requires the relevant eligibility, documentary and registration requirements to be satisfied. Operational controls such as branding standards, manuals, sales reporting or recommended retail prices do not, by themselves, convert an unregistered distributorship into a valid registered Commercial Agency.
Drafting should therefore address expressly:
whether the local party buys and resells on its own account;
whether it may bind the principal;
who carries inventory and credit risk;
how prices are determined;
what trademark licence is granted;
whether the parties intend the arrangement to be registered as a Commercial Agency; and
whether the proposed local counterparty is eligible for registration.
Intellectual property is central to most franchise relationships and to many distribution arrangements.
Trademark registration in the UAE should normally be secured in the name of the brand owner. Registration provides the clearest statutory basis for enforcement under Federal Decree-Law No. 36 of 2021 Concerning Trademarks. The legislation also contains protections relevant to well-known marks, so it is too broad to state that an unregistered mark has no protection at all.
A well-drafted franchise or distribution agreement should address:
Licence scope. Limit use to specified trademarks and approved goods or services, within the agreed territory and during the agreed term.
Ownership. Confirm that all goodwill and IP ownership remain with the brand owner.
Know-how and confidential information. Define protected information and impose appropriate continuing confidentiality obligations.
De-branding. Require prompt removal of signage, packaging, websites and digital materials following termination.
Domains and social media. Specify ownership and transfer obligations for local domain names, telephone numbers and social-media accounts.
Enforcement cooperation. Require the local party to notify the brand owner of suspected infringement and cooperate with enforcement steps.
The Ministry of Economy & Tourism makes a number of generic contract templates available, including distribution, restaurant franchise and trademark-licensing templates. These can be useful reference documents, but the Ministry itself states that the templates are generic. They should not be treated as a substitute for a contract tailored to the transaction.
The correct dispute forum depends on the nature of the contract, the parties, the location of assets and the intended enforcement strategy.
Arabic is the official language of the UAE onshore courts, subject to the procedural rules permitting designated use of English in certain circumstances. Court judgments are enforceable within the UAE, while enforcement abroad depends on the law of the destination jurisdiction and any applicable bilateral or multilateral arrangements.
The DIFC Courts are an English-language common-law court system. Importantly, parties to a civil or commercial contract may opt into DIFC Courts jurisdiction by a clear written agreement even where the dispute has no other connection with the DIFC.
The agreement should nevertheless use an appropriately drafted jurisdiction clause and should consider whether any overriding statutory regime applies to the particular relationship.
Arbitration may be appropriate for cross-border distribution and franchise agreements because it permits the parties to choose the tribunal, seat, language and procedural framework. The UAE is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
A typical DIAC clause should specify, among other matters, the DIAC Rules, the number of arbitrators, the legal seat and the language of the arbitration.
Illustrative clause:
“Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Arbitration Rules of the Dubai International Arbitration Centre (DIAC). The tribunal shall consist of one arbitrator. The seat of arbitration shall be Dubai, United Arab Emirates. The language of the arbitration shall be English.”
A registered Commercial Agency requires separate treatment. Federal Law No. 3 of 2022 establishes the Commercial Agencies Committee and provides that disputes between parties to a registered Commercial Agency must first be referred to that Committee before a case is admitted before the courts. The Law also contains specific provisions permitting arbitration.
Accordingly, a standard dispute-resolution clause should not be inserted into a registered Commercial Agency contract without checking it against Articles 23 to 26 of the Commercial Agencies Law.
Confirm whether the intended relationship is a distributor, franchisee, ordinary agent or registered Commercial Agent.
Check whether the proposed local party is eligible to register a Commercial Agency if registration is intended.
Define the Territory, products, customers and channels precisely.
Identify the scope of exclusivity and any reserved sales channels.
Include measurable KPIs and consequences for repeated failure.
Draft termination, expiry and non-renewal provisions separately.
Check whether the statutory Commercial Agency notice and compensation rules may apply.
Protect trademarks, confidential information, domains and digital assets.
Address stock, de-branding and post-termination obligations.
Select governing law and dispute resolution with enforcement in mind.
Determine whether the arrangement is registered in the Commercial Agencies Register.
Review the contract against the statutory regime that actually applies.
Document performance and any KPI or contractual breaches.
Follow the contractual notice provisions strictly.
Do not assume that direct sales, exclusivity reversion or termination rights can be exercised in the same way if the agreement is registered as a Commercial Agency.
Consider an amendment or side letter where material drafting gaps can be corrected by agreement.
Before termination, review stock, IP, customers, notices, registration status and potential compensation exposure.
The following provisions are illustrative only and must be adapted to the particular transaction.
Territory: “‘Territory’ means the Emirates of Dubai and Sharjah.”
Reserved channels: “Subject to applicable law, the Principal reserves the right to supply directly to the customers identified in Schedule 4 and through the e-commerce channels identified in Schedule 5.”
KPI: “The Distributor shall achieve a minimum net purchase value of AED [X] per calendar quarter, subject to the annual targets set out in Schedule 3.”
Audit and reporting: “The Distributor shall provide monthly sales reports by the 10th Business Day of the following month. The Principal may, on 15 Business Days’ written notice, audit records reasonably necessary to verify compliance with the reporting and KPI obligations.”
Termination for material breach: “If either party commits a material breach capable of remedy, the non-breaching party shall give written notice identifying the breach and allowing 30 days to remedy it. If the breach is not remedied within that period, the non-breaching party may terminate by further written notice, subject always to any mandatory law applicable to the relationship.”
Post-termination IP: “Upon termination or expiry, the licences granted under this Agreement shall cease, except to the extent expressly required for an agreed sell-down period. The Distributor shall cease use of the Marks and remove branded materials within the period specified in Schedule 6.”
Reversion of exclusivity: “If the Distributor fails to meet the Minimum Purchase Target for two consecutive quarters, the Principal may convert the appointment to non-exclusive status by written notice, to the extent permitted by applicable law and, where relevant, following any required amendment to a Commercial Agency registration.”
Governing law and arbitration: “This Agreement shall be governed by the laws of the United Arab Emirates. Any dispute arising out of or in connection with this Agreement shall be referred to and finally resolved by arbitration under the DIAC Arbitration Rules. The seat shall be Dubai, United Arab Emirates, the tribunal shall consist of one arbitrator, and the language shall be English.”
The principal drafting risk in UAE distribution and franchise agreements is not simply poor wording. It is failing to identify which legal regime governs the relationship.
An ordinary distributor, an ordinary contractual agent and a registered Commercial Agent are subject to materially different rules. Federal Law No. 3 of 2022 gives registered Commercial Agencies statutory consequences concerning exclusivity, commission, termination, non-renewal, compensation, assets and dispute resolution. The new Civil Transactions Law, in force since 1 June 2026, supplies the general contractual framework outside or alongside those specific rules.
The safest approach is therefore to define the commercial relationship precisely, verify whether Commercial Agency registration is intended or possible, build measurable performance obligations into the agreement, protect IP and post-termination rights, and select a dispute-resolution mechanism that is compatible with the statutory regime governing the contract.
For specialist advice on this topic, contact Shoeb Saher at Shoeb Saher.
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