How to Draft a Master Franchise Agreement

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

Writing a master franchise agreement can be an intimidating task for those unfamiliar with legal terminology. But the Genie AI team has developed a comprehensive guide that explains all aspects of the process, offering step-by-step guidance and access to our template library of market-standard documents.

A master franchise agreement is essentially a contract between the franchisor and the franchisee, outlining their respective roles and responsibilities, including fees and royalties, as well as dispute resolution processes should issues arise in future. It’s important to be aware of state and federal laws that may affect it too. Additionally, it should include information on how the agreement can be terminated by either party if necessary. The franchisor should also review any legal obligations they have towards their own responsibilities when drafting an agreement.

At Genie AI, we understand how essential this document is in protecting both parties from potential disputes down the line - that’s why we provide free templates tailored to different states’ laws so you can get it right first time! Our extensive dataset means you can create high quality legal documents quickly and easily without needing to hire lawyers or pay hefty fees - all you need is our template library and community support system to help you along your way.

So if you’re looking for information about how best to draft a master franchise agreement without breaking the bank or getting bogged down in legalese - head over to our website today for more info!

Definitions (feel free to skip)

Master Franchisor: The company or individual granting the franchise.
Master Franchisee: The person or company receiving the franchise.
Exclusivity Rights: The rights granted to the franchisee to operate the franchise in a particular market without competition.
Termination Clause: A clause in the agreement that outlines the circumstances and procedures under which either party can terminate the agreement.
Dispute Resolution: The procedure for resolving any disputes between the parties.
Arbitration: A legal process for resolving a dispute between two parties, in which a neutral third-party hears evidence and makes a decision.
Compensation: Payment or rewards given to the franchisee for services rendered.
Fees: Money paid for a service or goods.
Indemnification: A contractual agreement in which one party agrees to protect the other party from certain risks or liabilities.
Confidentiality: A requirement to keep certain information private.
Intellectual Property: Legal rights that protect the products of someone’s creative work, such as inventions, designs, and literary works.
Tax and Insurance Obligations: The legal requirements for paying taxes and obtaining insurance.
Regulatory Requirements: Rules, regulations, and laws that must be followed.
Post-Termination Obligations: Obligations that remain after the agreement has been terminated.
Due Diligence: An investigation of a potential investment to confirm all facts, such as financial, legal, and risk considerations, are considered before an agreement is made.
Local Counsel: A lawyer who is knowledgeable about the local laws and regulations of a particular region.
Ensuring Compliance: Making sure that an agreement meets all applicable laws and regulations.

Contents

• Definition of a master franchise agreement
• Benefits of entering into a master franchise agreement
• Elements that should be included in a master franchise agreement
• Termination rights of the parties
• Dispute resolution and arbitration
• Compensation and fees
• Liability and indemnification
• Confidentiality
• Intellectual property
• Tax and insurance obligations
• Regulatory requirements
• Post-termination obligations
• Negotiating a master franchise agreement
• Drafting the master franchise agreement
• Executing the master franchise agreement
• Conducting due diligence
• Working with local counsel
• Ensuring compliance with laws and regulations
• Other considerations for a master franchise agreement

Get started

Definition of a master franchise agreement

• Understand the purpose of a master franchise agreement, which is an agreement between a franchisor and franchisee to grant the franchisee the authority to appoint sub-franchisees in a designated territory
• Research local franchise laws and regulations to ensure all compliance requirements are met
• Draft the agreement, which should include details about the franchisor, franchisee, and sub-franchisee’s obligations, such as the territory, minimum fees, and royalty payments
• Have the agreement reviewed by an attorney

When you can check this off your list:

• You will know you can check this off your list when you have thoroughly researched local franchise laws and regulations, drafted the agreement, and had it reviewed by an attorney.

Benefits of entering into a master franchise agreement

• Master franchise agreements can help franchisees break into new markets, with the help of a franchisor who has established experience and a brand presence in that market
• Franchisees can benefit from shared resources, such as marketing and advertising, which can be more cost-effective than a single franchisee operating alone
• Master franchise agreements can also help franchisees to achieve greater economies of scale, as they can benefit from the franchisor’s purchasing power and economies of scale
• Master franchise agreements can help to ensure that the franchisor’s brand remains consistent across all markets, as the master franchisee is responsible for maintaining the franchisor’s standards and system

When you have identified the key benefits of entering into a master franchise agreement and how they can benefit both parties, you will have completed this step and can move on to the next step of drafting the master franchise agreement.

Elements that should be included in a master franchise agreement

• A detailed description of the franchisor’s intellectual property rights, including the franchisor’s trademarks, service marks, and trade dress
• The scope and limitations of the master franchisee’s right to use and sublicense the franchisor’s intellectual property
• The grant of a limited right to the master franchisee to use the franchisor’s confidential information
• The scope of the master franchisee’s right to use the franchisor’s business system or method of operation
• The limitations of the master franchisee’s right to open and operate franchised outlets
• The franchisor’s right to approve all subfranchisees and outlets
• The master franchisee’s obligations, including the obligations to develop and promote the franchised business, to pay fees and royalties, and to comply with the franchisor’s standards and procedures
• The master franchisee’s right to receive training, support, and guidance from the franchisor
• The term of the agreement and renewal provisions
• Termination rights and procedures of the parties
• Dispute resolution procedures

When you have included all the elements listed above in your master franchise agreement, you can check this off your list and move on to the next step.

Termination rights of the parties

• Consider the conditions under which the agreement will be terminated and the parties’ rights in the event of a termination
• Research applicable laws and regulations to ensure that the termination rights are compliant
• Outline the termination rights of the master franchisee and franchisor in the agreement
• Specify any notice requirements for the franchisee and franchisor in the event of a termination
• Include language that requires the franchisee to return all proprietary information to the franchisor upon termination
• Include any other necessary clauses relating to termination rights, such as early termination fees
• Review the agreement to ensure it is legally binding and all termination rights are clearly outlined

You can check this step off your list when you have reviewed the agreement and ensured that all termination rights are outlined and compliant with applicable laws and regulations.

Dispute resolution and arbitration

• Outline a dispute resolution process that both parties agree to
• Discuss which jurisdiction’s laws will govern the agreement
• Identify a mediator or arbitrator who will resolve any disputes that arise
• Decide who will pay the costs of the dispute resolution process
• Specify the details of the dispute resolution process, such as how long each side will have to present their case
• Include language that both parties must abide by the decision of the mediator or arbitrator

You will know you are finished with this step of the process when you have written a comprehensive dispute resolution clause that both parties agree to and is included in the master franchise agreement.

Compensation and fees

• Determine the compensation structure the master franchisee will receive
• Establish the fees the master franchisee will have to pay
• Include details such as royalty fees, marketing fees, and initial franchise fees
• Specify when fees will be due and the consequences of failing to pay
• List any other fees that may be incurred
• Specify any discounts or bonuses the master franchisee may receive

Once all the details of the compensation and fees are finalized, the master franchise agreement is ready to move on to the next step: Liability and indemnification.

Liability and indemnification

• Analyze the franchise relationship and the duties of each party to determine the scope of potential liabilities that should be addressed in the agreement.
• Identify any applicable laws and regulations that limit or affect the liabilities of the parties and include them in the agreement.
• Draft provisions in the agreement that assign liability between the parties and minimize potential liabilities.
• Create indemnification provisions that protect the Master Franchisee from claims arising from the franchise agreement and any obligations imposed by the Franchisor.
• Draft provisions that determine the jurisdiction in which any potential disputes will be resolved.
• Include a clause that requires the parties to bear their own legal costs in any disputes.
• Make sure the agreement includes any other provisions that the parties wish to incorporate regarding liabilities and indemnification.

You will know that you can check this off your list and move on to the next step once all of the above points have been included in the agreement.

Confidentiality

• Identify what information needs to be kept confidential
• Determine who is responsible for safeguarding confidential information
• Outline the duties and obligations of both parties to protect confidential information
• Specify which party owns the confidential information
• Set the duration of the confidentiality period
• Establish the consequences for a breach of confidentiality

Once you have outlined the terms of confidentiality and the associated duties and obligations, you can check this step off your list and move on to the next step - Intellectual property.

Intellectual property

• Ensure that the Master Franchise Agreement grants the Franchisee the right to use the Franchisor’s intellectual property, including trademarks and copyrighted materials
• Define the scope of the Franchisee’s use of the intellectual property and set out any exclusivity restrictions
• Specify the duration of the Franchisee’s right to use the intellectual property
• Identify the responsibilities of both parties with regard to the protection, maintenance and enforcement of the intellectual property rights
• Include a provision that states that all intellectual property rights remain the property of the Franchisor

Once the Intellectual Property section of the Master Franchise Agreement is completed, you can check this off your list and move onto the next step - Tax and Insurance Obligations.

Tax and insurance obligations

• Work with a lawyer to determine which taxes the master franchisee should be responsible for
• Outline which taxes the franchisor will be responsible for, if any
• Decide who should be responsible for employees’ payroll taxes
• Specify who will be responsible for insurance for the master franchisee, employees, and customers
• Outline which insurance policies should be in place for the master franchisee, employees, and customers

When you have outlined the taxes and insurance obligations in the agreement, you can move on to the next step of regulatory requirements.

Regulatory requirements

• Research the relevant laws, regulations, and other requirements applicable to the franchise operations in the territory
• Draft the necessary provisions in the Master Franchise Agreement to ensure that the franchisee is in compliance with all applicable laws, regulations, and other requirements
• Have an attorney review the drafted provisions for accuracy and completeness

Once you have completed the research and drafted the necessary provisions, you can check this step off your list and move on to the next step - Tax and Insurance Obligations.

Post-termination obligations

• Carefully consider what obligations will be imposed on both parties in the event of termination of the master franchise agreement.
• Outline the conditions under which either party may terminate the agreement, the notice period that must be given before termination, and the remedy that must be provided in the event of termination.
• Address the issue of confidential information, including the return of all confidential information and the preservation of trade secrets.
• Determine whether the master franchise agreement will require the franchisor to pay compensation to the franchisee in the event of termination or expiration.
• Specify the obligations of both parties after the termination of the master franchise agreement.

You can check this step off your list when you have included everything that you intend to include regarding post-termination obligations in the master franchise agreement.

Negotiating a master franchise agreement

• Understand what the master franchisee will be allowed to do in the franchise system
• Discuss the scope of the franchise agreement, including the territory, fees, and other restrictions
• Outline the obligations of the master franchisee and the franchisor
• Describe the expectations the franchisor has of the master franchisee
• Agree on the minimum standards the master franchisee must meet
• Discuss the length of the agreement, renewal options, and end dates
• Negotiate the fees and other financial obligations
• Discuss the termination provisions
• Finalize the agreement

You will know when you have completed this step when you have reached an agreement with the master franchisee on all the terms and conditions of the master franchise agreement and the two parties have signed the document.

Drafting the master franchise agreement

• Consult with a franchise lawyer to ensure the agreement covers all of the necessary legal considerations
• Finalize a draft of the agreement that is acceptable to both parties
• Ensure that all of the terms and conditions of the agreement are agreed upon and documented
• Have both parties review and sign the agreement
• When both parties have signed the agreement, you can move on to the next step of executing the master franchise agreement.

Executing the master franchise agreement

• Have both parties sign the master franchise agreement
• Ensure each party has received a copy of the agreement
• Make sure the agreement includes all the necessary elements, such as:
• The name of the parties
• The geographical area included in the agreement
• The rights and obligations of the franchisee
• The fees to be paid by the franchisee
• Ensure that the agreement is legal and binding
• Submit any required registration or filing documents
• When complete, both parties will have a signed master franchise agreement
• You’ll know when you can check this off your list and move onto the next step when both parties have signed the agreement and have a copy in their possession.

Conducting due diligence

• Research laws, regulations, and restrictions that apply to the master franchise agreement in the location you’re entering
• Check to make sure the local franchise laws do not conflict with the master franchise agreement
• Make sure that all necessary government approvals have been obtained
• Research the local market to make sure it is suitable for the franchise
• Obtain any necessary licenses or permits for the franchise
• Ensure that the proposed location is suitable for the franchise

Once you’ve completed this research and due diligence, you can move on to the next step in the process: working with local counsel.

Working with local counsel

• Familiarize yourself with the local laws and regulations in the jurisdiction where the franchise is being established.
• Reach out to local counsel to provide you with advice on the local legal requirements and to help draft the Master Franchise Agreement.
• Work with local counsel to ensure that the Master Franchise Agreement complies with all applicable local laws, regulations, and ordinances.
• Make sure that all the necessary provisions are included in the Master Franchise Agreement.
• When you’re satisfied that the Master Franchise Agreement is complete and compliant, check this step off your list and move on to the next step.

Ensuring compliance with laws and regulations

• Research applicable laws and regulations in the target jurisdiction to ensure the master franchise agreement is in compliance
• Consult with local counsel to ensure the agreement is legally sound
• Work with local counsel to draft appropriate provisions into the agreement to ensure compliance with relevant laws
• Review the agreement to confirm that the provisions are sufficient to ensure compliance

When you can check this off your list:

• When you have researched the applicable laws and regulations
• When you have consulted with local counsel
• When you have drafted appropriate provisions
• When you have reviewed the agreement and confirmed that the provisions are sufficient to ensure compliance

Other considerations for a master franchise agreement

• Explore the specific provisions that are included in a master franchise agreement and ensure that these provisions are addressed in the agreement.
• Consider the franchise chain’s long-term goals and objectives and ensure that the master franchise agreement reflects those goals and objectives.
• Analyze the performance standards that are required of the master franchisee and ensure that they are reasonable and achievable.
• Consider the financial and operational requirements that the master franchisee must meet and ensure that they are feasible.
• Review the dispute resolution procedures and ensure that they are clear and effective.
• Think about the termination provisions in the agreement and ensure that they are fair to both parties.

You will know that you can check this off your list and move on to the next step when you are satisfied that the master franchise agreement adequately addresses all of the considerations listed above.

FAQ:

Q: Is a master franchise agreement legally binding in the UK?

Asked by John on April 12th, 2022.
A: A master franchise agreement is legally binding in the UK, as with any contract that is signed and agreed upon. However, it is important to remember that contracts are interpreted differently depending on jurisdiction and local laws, so it may be necessary to have the agreement reviewed by a qualified lawyer who is familiar with the local laws and regulations in order to ensure that it meets all legal requirements. Additionally, it’s important to note that a master franchise agreement may not be enforceable in court, so it’s important to make sure that all parties involved are aware of this before signing.

Example dispute

Suing a Master Franchisee

• A plaintiff could raise a lawsuit against a master franchisee if they are in breach of a master franchise agreement.
• This breach could be related to the failure to pay fees, adhere to the terms and conditions of the agreement, or failure to provide the services outlined in the agreement.
• The plaintiff could then seek to have the agreement enforced or seek damages for losses incurred due to the breach.
• The plaintiff may also be able to seek an injunction to prevent the master franchisee from continuing to breach the agreement as well as damages for any losses incurred due to the breach.
• The court could also order the master franchisee to pay the plaintiff’s legal costs if the suit is successful.
• If the court finds that the master franchisee was in breach of the agreement, they may also be liable for punitive damages.

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