When the franchise business gets bigger, it needs more support to grow. Though the basic formation holds the franchisor and franchisee relationship, with time, the master franchise is introduced to support the growth of the business.
You may hear of the single unit, multi-unit, or area development franchise, but the master franchise is slightly different.
Through this franchise agreement, one person or entity will get the liability not only to manage the master franchisees but also to sell unites of the franchise to subfranchisee for a particular geographical area.
It defines the business relationship between the subfranchisor and subfranchisee while the subfranchisor will have a separate unite franchise agreement with the actual unit.
The master franchise is popular among the international franchise as the geographical location of the franchisor is not feasible to serve the market area.
It is the Master Franchise Attorney who defines the relation of the franchisor, subfranchisor, and subfranchisee in the FDD. The existence of the ‘middle-man’ or the subfranchisor stands between the franchisor and the subfranchisees.
Things get complex when it comes to the elimination of the middle man. The termination of the master franchise agreement questions the existence of the subfranchisees.
After the termination of the agreement, the agreement between the subfranchisor and subfranchisees also becomes obsolete. The subfrachisor does not have the right to operate the business that leads to trademark infringement.
As the agreement has been terminated, the subfranchisees also don’t have the right to operate the business. They receive no support from the management and difficulty in handling the supplies along with difficulties to deal with the real estate.
To avoid any such condition and protect the business, the franchisor must prepare the master franchise agreement to prevent the potential termination after discussing with the Master Franchise Attorney.
Generally, the master franchise agreement offers a potential option for the franchisor. The franchisors may assign the subfranchisees by themselves.
Though it is the most future-proof option, not all franchisors are in the position to take the responsibility and execute the required activities for it because only for that reason they have chosen the master franchise in the first place.
To avoid such confusion, the franchisor must provide any other subfranchisor to execute the same responsibilities.