Discusses opportunities for U.S. franchisers and legal requirements in the market.
Last Published: 11/20/2018

A number of U.S. franchises are well established in Oman, particularly in the fast-food restaurant sector. Most major brands are well established, with new ones opening regularly. Relatively high per capita income, a young population, a high rate of unaccompanied expatriates, and the lack of alternate entertainment venues encourage out-of-home dining and entertainment options. U.S. car rental franchises are also popular. Omani businesses continue to express interest in U.S. franchise opportunities, especially family-oriented, recreational and educational outlets. Oman has hosted two expositions for franchise businesses over the past several years.
To franchise in Oman, the franchisor and the local franchisee must sign a formal contract, which must be approved by OCCI and registered with the Registrar of Agents and Commercial Agencies at the MOCI and the local municipality. Under Omani law, franchise relationships fall under the authority of the Commercial Agencies Law (the “CAL”) promulgated by Royal Decree No. 26 of 1977 (as amended). Franchise agreements can also be made subject to a non-Omani law, if coupled with an arbitration clause.

The CAL provides that agency contracts (which include franchise relationships) must be registered in the Register of Commercial Agencies at the Ministry of Commerce and Industry. Registration is extremely important for a franchisee because courts will not recognize an unregistered franchise in the event of any dispute concerning the franchise relationship. Similarly, despite the fact Oman is a party to the New York Convention of 1958 on the Enforcement of Foreign Arbitral Awards (the “New York Convention”), if the franchise is not registered, a foreign arbitral award in relation to the agreement may not be enforced in Oman.

Local legal experts typically recommend provisions permitting the franchisor to terminate the agreement if the franchisee performs inadequately, as well as provisions limiting the agreement to a fixed term in order to protect the franchisor. However, the CAL stipulates that when a principal refuses to renew the term of the agency contract, unless the principal can justify his refusal to renew the contract, compensation is payable to the agent. Accordingly, in the absence of being able to prove fault by the agent that justifies termination or non-renewal, there is an obligation on the principal to renew the term or to pay the agent appropriate compensation. In this regard, a franchise agreement that places significant responsibilities on the agent is beneficial to the franchisor in that there may be more likelihood of being able to prove material breach and thus terminate the franchise without paying compensation.
 

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