A Franchise Agreement Review is a critical legal step, whether conducted prior to signing or when a dispute arises between the franchisor and the franchisee. Franchise agreements are long-term contractual relationships that directly affect the stability and feasibility of the franchisee’s investment. One of the most sensitive and frequently disputed provisions is the franchisor’s right to modify the business model. While the franchisor must retain flexibility to develop the brand and standardize operations, the franchisee equally requires clarity and legal boundaries to avoid unexpected obligations or financial burdens. This article examines the legal scope of that right and the safeguards that must be considered during a Franchise Agreement Review.
Mohammed Almuzayen Law Firm, led by legal consultant Mohammed Almuzayen, has undertaken the management of the legal affairs of one of the largest companies operating under the franchise (franchising) system in the Kingdom of Saudi Arabia, namely Golden Petroleum Investment Company, whose brand network currently exceeds 500 franchise outlets. The company applies the highest standards in franchise management in accordance with international best practices issued by the International Franchise Association (IFA), in addition to its strict standards relating to product quality and supply chain safety. This hands-on experience in managing the legal affairs of hundreds of franchisees, regulating the relationship between headquarters, branches, and operators, and addressing issues related to consumer protection, anti-commercial fraud regulations, and commercial advertising laws, has resulted in the development of an integrated and practical legal framework within the firm for structuring legal advisory arrangements capable of keeping pace with the nature and scale of such franchise operations, safeguarding the company’s interests, solidifying the obligations of its partners and distributors, and supporting the governance of its expansion and operational decisions across its franchise network.
What Will You Read in This Article?
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What does “modifying the business model” mean in franchise agreements?
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Does the franchisor have an absolute right to make changes?
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The legal distinction between operational modifications and material changes
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Five key risks franchisees should consider when changes are imposed
About the Author
Mohammed Almuzayen is a lawyer and arbitrator with more than fifteen years of experience, specializing in construction disputes, government contracts, and franchise agreements. He holds a Bachelor of Laws from King Saud University (Riyadh, 2009) and has extensive practical experience working with major national companies, including Al-Majdouie Group, Binzagr Company, United Mining Investments Company, Al-Mawarid Listed Company, and Golden Petroleum Investment Company.
Franchise Agreement Review: What Does Modifying the Business Model Mean?
In the context of a Franchise Agreement Review, “modifying the business model” refers to any change that affects the operating framework on which the franchise relationship was originally built. This includes changes to operations, systems, branding, supply chains, or the core products and services offered.
Under Article 11 of the Saudi Franchise Law, the franchise agreement must be in writing and must explicitly state the method for amending the agreement. As a result, any changes that impact core contractual terms must be handled through the formal amendment mechanism agreed upon by both parties, rather than being imposed unpredictably.
Common examples of modifying the business model include:
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Operations Manual Updates: Revising day-to-day performance standards and required practices.
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Technological Integration: Requiring new mandatory software, POS systems, or digital reporting tools.
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Supply Chain Adjustments: Changing approved suppliers or mandatory procurement channels.
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Branding & Identity Updates: Refreshing logos, store fit-outs, and marketing direction.
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Product/Service Changes: Adjusting the core menu or delivery model to align with market conditions.
Legal Caution (for Franchise Agreement Review):
A careful review should focus on how “modifications” are defined and how the amendment process is structured. If the clause is drafted too broadly, it may enable the franchisor to treat material changes as routine operational instructions—creating significant cost or risk exposure for the franchisee. The safer approach is to ensure the contract clearly distinguishes operational updates from material amendments, and ties the latter to a defined amendment procedure (notice, timelines, cost allocation, and escalation/objection pathway).
Franchise Agreement Review under Saudi Franchise Law (Article 11): what “business model modification” means, operational vs material changes, and 5 key franchisee risks—plus when you need a formal amendment. Call Mohammed Almuzayen Law Firm: 0590098800.
Does the Franchisor Have an Absolute Right to Modify the Business Model?
Under the Saudi Franchise Law, specifically Article 11, a franchise agreement must clearly outline the method of modification. This requirement implies that any change to the business model cannot be arbitrary or unilateral without a pre-defined legal process.
While the franchisor’s right to modify the business model is grounded in the necessity of protecting the brand’s identity and ensuring network consistency, this right is not absolute. A professional Franchise Agreement Review must ensure the following legal safeguards are met:
Reasonableness & Justification: Any modification must be based on legitimate commercial needs or brand evolution, not merely to impose hardship on the franchisee.
Contractual Balance: The change must not materially disrupt the economic equilibrium of the agreement as envisioned at the time of signing.
Financial Safeguards: The franchisor cannot impose unforeseen and uncapped financial obligations without established boundaries or a mechanism for cost-sharing/relief.
In Mohammed Almuzayen’s practice:
We treat a Franchise Agreement Review as a critical “legal filter” for our clients. We believe that a well-drafted modification clause must be a tool for mutual growth, not a gateway for unilateral risk.
Our firm’s approach ensures that any proposed change to the business model is rigorously evaluated against the standards of fairness and the specific requirements of the Saudi Franchise Law. We don’t just identify clauses; we assess whether they safeguard the franchisee’s stability or expose their entire investment to unpredictable jeopardy. For us, a successful review is one that transforms vague discretionary powers into clearly defined, balanced contractual obligations.
Legal Consultation
For professional legal assistance with a Franchise Agreement Review or assessing the legal implications of a proposed business model modification, you may contact Mohammed Almuzayen Law Firm.
Why Partner with Our Firm? Our legal advisory goes beyond theoretical analysis. We provide a battle-tested framework built on real-world experience in the Saudi market:
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Proven Track Record: We have spearheaded the legal governance and expansion strategies for major networks, including Golden Petroleum Investment Company, managing a franchise ecosystem of over 500 outlets.
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Regulatory Mastery: Our team works on aligning your agreement strictly with Article 11 of the Saudi Franchise Law, transforming mandatory requirements into strategic protections for your investment.
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Operational Insight: Having regulated the intricate relationships between headquarters, branches, and operators, we identify “hidden risks” in operations manuals that standard reviews often miss.
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Global Standards, Local Expertise: We blend international best practices (IFA) with a deep understanding of Saudi Consumer Protection and Anti-Commercial Fraud regulations.
Don’t leave your investment to chance. Let us architect a franchise agreement that supports your growth while shielding your interests.
Five Key Risks to Consider When the Franchisor Requests a Business Model Change
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Unexpected and Unlimited Financial Costs
Changes may require renovations, new technology, or operational restructuring without a defined cost cap or reasonable timeline. -
Transformation into a Material Contractual Modification
Certain changes go beyond development and fundamentally alter the franchise’s commercial viability. -
Additional Regulatory and Licensing Burdens
Modifications may trigger new regulatory approvals, municipal permits, or compliance requirements, with liability falling on the franchisee. -
Penalties for Non-Compliance or Delay
Failure to implement changes within prescribed timelines may result in notices of default, contractual penalties, or termination. -
Negative Impact on Revenue and Brand Reputation
Transitional periods may disrupt operations or customer loyalty, often without contractual compensation or fee relief.
Frequently Asked Questions (FAQ)
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Q: Why is a professional Franchise Agreement Review essential before modifying the business model?
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A professional Franchise Agreement Review is the only way to ensure that any proposed modifying of the business model complies with Article 11 of the Saudi Franchise Law. Without this review, a franchisee might unknowingly accept uncapped financial obligations that jeopardize their investment stability.
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Q: Can a franchisor enforce modifying the business model without a prior Franchise Agreement Review?
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In our practice: While a franchisor may attempt to impose changes, our Franchise Agreement Review often reveals that material changes (not just routine operational updates) require a formal contractual amendment process. Under the Saudi Franchise Law, these changes cannot be arbitrary or unilateral if they disrupt the contractual balance.
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Q: Does a Franchise Agreement Review protect against unforeseen costs during branding updates?
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Yes. During our Franchise Agreement Review, we assess modification clauses to ensure they include “Reasonableness” standards. We believe that any modifying of the business model involving branding or fit-outs must have defined cost-sharing mechanisms to prevent the franchisor from imposing unfair financial burdens.
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Conclusion
A Franchise Agreement Review goes far beyond a superficial reading of contract clauses. As we have established through the Al-Muzayen Doctrine, the provisions governing any modifying of the business model are among the most critical and potentially risky elements of a franchise relationship.
Proper legal scrutiny by Mohammed Almuzayen Law Firm ensures that brand development does not come at the expense of the franchisee’s investment stability. By transforming vague discretionary powers into clearly defined contractual safeguards, we minimize future disputes and provide the “legal filter” necessary for long-term growth and security.
Related Articles
If you found this analysis helpful, we recommend exploring our further insights into Saudi Franchise Law and strategic legal safeguards:
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How a Franchise Lawyer Assesses Franchisor Liability for Bad Site Approval– A practical guide on the franchisor’s duty of care when approving locations.
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Franchise Lawyer in Saudi Arabia: A Boutique Approach for Growing Networks – An introductory overview of our firm’s 5-year journey as legal counsel for major networks like Golden Petroleum.
Concise Legal Summary
A Franchise Agreement Review by Mohammed Almuzayen Law Firm is essential to understanding the franchisor’s authority to modifying the business model and the legal limits of that authority. By applying the Al-Muzayen Doctrine, we distinguish between routine operational updates and material changes, ensuring your investment is protected and the contractual balance is maintained according to the Saudi Franchise Law.
