Key Aspects of a MASTER FRANCHISE AGREEMENT

Pursuing a multi-franchise operation for an expansive territory, professional legal advice for a master franchise is invaluable.

Contact Neufeld Legal PC for franchising legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

A Master Franchise Agreement is a legal contract between a franchisor (the original brand owner) and a master franchisee. The master franchise agreement grants the master franchisee the exclusive right to develop and manage the franchise system within a large, specified territory, such as a country, a region, or a province. The master franchisee effectively becomes a "quasi-franchisor" for that expansive territory and takes on many of the responsibilities that the original franchisor would have for that territory, while remaining subservient and contractually bound to the actual franchisor.

What sets apart the business arrangement under a Master Franchise Agreement can be discerned from its central defining features:

• Sub-franchising Rights: The most significant feature is that the master franchisee has the right to sell and grant individual franchise agreements (known as "sub-franchises" or "unit franchises") to other parties within their territory [more on sub-franchisees].

• Role of the Master Franchisee: The master franchisee acts as the direct point of contact and support for all the individual sub-franchisees in their region. They are responsible for:

  • Recruiting and training new sub-franchisees.

  • Providing ongoing support, marketing, and management assistance.

  • Ensuring that all sub-franchisees adhere to the brand's standards and operational guidelines.

  • Collecting franchise fees and royalties from the sub-franchisees and sharing a portion of this revenue with the original franchisor.

• Territory: The agreement typically grants exclusive rights to a large geographical area. The master franchisee is usually required to meet specific development targets, such as opening a certain number of new franchise units within a set timeframe.

• Financial Structure: The master franchisee pays an initial fee to the franchisor for the rights to the territory and then shares a percentage of the ongoing royalties and other fees collected from the sub-franchisees.

Meanwhile, recognizing the key advantages and disadvantages of a master franchisee arrangement, from both the perspective of the franchisor and the master franchisee is important to any prospective master franchisee pursuing, negotiating and securing a master franchise agreement to launch one's new business empire:

• From the perspective of the Franchisor:

  • Advantage - Rapid expansion into new, often international, markets with less capital risk and a reduced administrative burden.

  • Advantage - The franchisor can leverage the master franchisee's local expertise and knowledge.

  • Disadvantage - Less direct control over the day-to-day operations and brand standards at the individual unit level.

  • Disadvantage - The franchisor's brand reputation is heavily dependent on the performance of the master franchisee.

• From the perspective of the Master Franchisee:

  • Advantage - High earning potential from both their own units (if the master franchisee choose to operate them) and the fees and royalties collected from sub-franchisees.

  • Advantage - The master franchisee has exclusive rights to a large territory, which can be a valuable asset.

  • Disadvantage - Requires a significant investment and strong management skills.

  • Disadvantage - The master franchisee assumes a great deal of responsibility and legal exposure for the performance and actions of all the sub-franchisees in their territory.

Christopher Neufeld is a business lawyer knowledgeable in the rigors and challenges of an expansive franchise enterprise that is undertaken by way of a master franchise agreement, together with the legal constructs that are critical to their effective operation. For experienced legal representation in starting, acquiring / selling, operating and managing a franchise, contact franchisee lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.