It is fairly common for a franchisee to own more than one franchised location. Often these franchisees develop several franchises in a region to take advantage of market conditions, increase revenue quickly, improve efficiencies or reduce costs by running multiple local businesses. However, typically, they cannot develop all locations at once which can be problematic for both the franchisor and franchisee. That is where an Area Development Agreement can help. It grants the franchisee a protected territory in which to open a specified number of franchises on a negotiated schedule. Area Development Agreements are complex, and the parties should have skilled attorneys representing their interests. Lusthaus Law has extensive experience with these agreements, helping clients successfully expand their businesses.
Benefits of Area Development Agreements
These agreements give a franchisee time to launch without worrying about another franchisee coming into the territory. The franchisor benefits because it has fewer franchisees to manage and receives some compensation upfront in consideration for holding the territory open for the area developer.
Several agreements in one
Area Development Agreements (also known as Multi-Unit Operator Agreements) actually require that several agreements and related documents be negotiated and drafted. The franchisor will need the following:
- Franchise Disclosure Document
- Franchise Agreement
- Area Development Agreement
In addition, a new franchise agreement will be required for each location.
Among the key provisions the Area Development Agreement must include are:
- Territory definition
- Exclusivity rights and exceptions
- The number of locations to be developed and time frames for development
- Site selection and approval responsibilities of the parties
- Transfer provisions
- Royalties and fees
- Termination provisions
Many of these terms can vary significantly from a typical franchise agreement so legal representation is essential. Lusthaus Law has worked with franchisors and franchisees to negotiate and draft documents and protect and advocate for clients’ business interests.
An area development acquisition can be very profitable for both franchisors and franchisees unless the parties make costly mistakes. Consult an experienced franchise attorney to structure the transaction. If you are considering an area development agreement, contact Lusthaus Law to learn how we can help you.