Qatar’s Draft Franchise Law

The Ministry of Economy and Commerce (“MEC”) has prepared a draft franchise law as part of its strategy to prepare the market for an increase in international inbound franchise transactions and domestic entrepreneurs creating grass-root franchise businesses. As a note of disclosure, the draft law is a very early stage manuscript and has not commenced the process for promulgation.

For the draft law to be passed, the concerned Minister sends the draft law to the Permanent Legislative Committee for review and final drafting. The draft law is then given its first reading by the Council of Ministers who in turn request consultation and comments from the Advisory (Shura) Council. The Council of Ministers finally gives the draft law a second reading before it is promulgated by His Highness, the Emir of Qatar.

Franchises in Qatar are not expressly addressed under law. Instead, they are addressed collectively by separate pieces of legislation. For example, an exclusive franchise that involves a commodity trade may be treated as an exclusive agency under Law No. 8 of 2002 Regarding Commercial Agents and registered with the MEC’s commercial agents registrar. Whilst other hallmarks of a franchise relationship, such as license to trademark use, are separately governed by Law No. 9 of 2002 Regarding Trademarks. Parties to a franchise transaction would – for a variety of reasons – pursue different transactional avenues such as creating a contractual relationship, registering an agent/principal relationship, or in some cases jointly incorporating a company.

One of the institutional additions of the draft law is the establishment of a franchisee registrar at the MEC. Franchisees wishing to be registered must fulfil certain requirements. Mainly, the franchisee must have a valid commercial registration with the MEC or provide proof of registration in their home country in the case of non-Qatari companies. In addition, the applicant must have registered their license to use the franchise trademark with the Trademark Office at the MEC prior to submitting their application to the registrar. The duration of the registration is set at a renewable two years.

The MEC will prepare a template franchise agreement, and although parties are not obligated to use the template, any other agreement signed between the parties may not contain conflicting provisions. The draft law mandates any dispute between the franchisee and franchisor over the franchise to be settled before the Qatari courts. However, this provision can be opted out of in favour of other dispute resolution mechanisms.

A franchisee is not automatically exclusive but if the franchisee finds justification to object to the franchisor assigning a new franchisee, the franchisee may submit their grievance to the MEC. Interestingly, the draft law permits the franchisee to protest against the change of control of a franchisor via the MEC. Control is defined in the draft law as any of (i) majority ownership, (ii) majority voting rights, or (iii) authority to appoint board members and executives. In terms of customer oriented liability, both the franchisee and franchisor will be responsible for spare parts and maintenance in applicable cases.

The draft law expressly excludes from its jurisdiction agency agreements, agreements that do not include the provision of technical expertise and set business model guidelines, arrangements where the franchisor is owned by the franchisee, any arrangements where the State of Qatar is a party including State owned companies.

To learn more, contact the author:

Mahmoud Abuwasel