Franchise Development

Franchise Development

The franchisor may grant a master franchise agreement or a master development agreement that obliges the developer to develop the franchise either by itself or through others.

Development Obligations

The development agreement or the development element of the franchise agreement may require that the territory, in respect of which exclusivity is granted, must be exploited by the opening of units or the grant of sub-franchises over a defined period. Non-exploitation or the failure to meet targets may cause a loss or contraction of the development rights.

Master Franchisor’s Rights

Under a master franchise agreement, the franchisee is usually granted the exclusive right to operate franchise businesses and/ or license sub-franchisees within the territories.There is a three-tier structure among the parties involved (franchisor, subfranchisor and sub-franchisee).

Potential Advantages

The master franchisee takes on full responsibility for the operation of the franchise system in the territory that has been granted. The master franchisee’s liability is limited in that contractual privity is solely between master franchisee and franchisee.

Potential Disadvantages

It may be difficult to find a suitable master franchisee who has the experience, and sufficient capital and operating resources to be able to operate the system autonomously in the territory. The investment required to be made by the master franchisee is usually significant, and the upfront grant fees are usually high.