By their very nature, master franchise agreements are complex, so it is important that they are clearly drafted to avoid possible ambiguities. The most fundamental issue that needs to be addressed within the contract is the relationship between franchise owner, master franchisee and the individual franchisees. Defining the responsibilities associated with these three levels of participation in the franchise is the main key to devising a successful master franchise agreement.
The master franchise agreement must explicitly define the rights being devolved to the master franchisee. Areas covered usually include:
the exact definition of the franchise territory, in terms of both geography and exclusivity of access to that territory;
maximum number of individual franchisees permitted within the territory and any restrictions placed upon them;
length of the franchise term;
options for renewal of the franchise at the end of the franchise term;
the franchise owner’s rights to vary the master franchise contract during the term of the franchise to reflect changing market conditions;
circumstances under which the franchise owner or the master franchisee can terminate the master franchise agreement prematurely and any penalties that might ensue;
division of responsibilities between the franchise owner and the master franchisee for the support of individual franchisees;
apportionment of initial fees from individual franchisees between the franchise owner and the master franchisee;
apportionment of ongoing fees from individual franchisees between the franchise owner and the master franchisee;
rules covering the franchise’s permitted suppliers;
legitimate uses of the franchise’s brand names and images;
procedures for resolution of disputes between different parties.
In addition to the formal master franchise agreement, most successful franchises operate supplementary agreements and procedures to maintain good communications with individual franchisees, particularly to plan and implement marketing campaigns. These campaigns help to promote the franchise in the short-term and to develop the brand identity over the longer term.
A master franchise agreement defines the relationship between franchise owner, master franchisee and individual franchisees;
the complexity of master franchise agreements should not be underestimated;
in addition to a comprehensive master franchise agreement, good communications need to be maintained between all parties throughout the term of the franchise, in order to ensure continuing success.