Master Franchise Agreement

Master franchising is popular with service franchises.  Service franchises are those which involve the franchisee selling services rather than goods.  Service franchises are common in the home services, cleaning and courier industries.  Often there will be no retail premises involved, with the franchisee operating from home.  The use of a vehicle will be a critical element of the franchise.

A feature of service franchises is the high number of individual franchisees.  To avoid creating a large head office bureaucracy master franchising can be used to delegate the responsibility of growing, developing and monitoring the network in a territory to a master franchisee.

The definition of ‘franchisor’ in Clause 3 of the Code includes a master franchisee.  Clause 3 also states that ‘subfranchisor has the same meaning as master franchisee’.

The grant of a master franchise is very similar to the grant of a franchise.  However, the terms of the master franchise and the responsibilities of the master franchisee are different from those of a franchisee.  A franchisor must provide a master franchisee with a disclosure document, a cooling off period and other arrangements applicable to franchisees under the Code.

While a master franchisee is entitled to receive a disclosure document, the Code is not clear about whether it must also provide one to franchisees.  The better practice is to do so, particularly if the master franchisee is a party to the franchise agreement.

Structure of Master Franchise

The master franchise arrangement can be structured in such a way that the master franchisee can be a prime contracting party, an agent of the franchisor, or a joint contracting party.  The franchisor will normally wish to protect the business format, systems and image that the franchisor has developed, but otherwise the nature of the master franchising arrangement can be structured to suit the needs of the particular network.

When creating master franchise arrangements consider the prohibition of Pyramid selling schemes in Division 3 of the Australian Consumer Law.  This prohibition may well render some methods of master franchising illegal.

Content of master franchise agreements

The Code imposes the same obligations upon a franchisor concerning the content of a master franchise agreement as apply to the content of a franchise agreement. A ‘franchisee’ is defined in clause 3 of the Code to include ‘a subfranchisor in its relationship with a franchisor’.

Contents Includes:-

1                Definitions

2                PRIMARY ACKNOWLE  DGMENTS

3                COVENANTS

4                GRANT OF MASTER FRANCHISE

5                CONDITIONS PRECEDENT

6                TERM & TERMINATION

7                DUTIES OF THE FRANCHISOR

8                DUTIES OF THE MASTER FRANCHISEE

9                RECRUITMENT AND MANAGEMENT OF FRANCHISEES

10              AUTHORITY TO GRANT FRANCHISES

11              MEETINGS

12              REPORTING

13              FRANCHISE FEES

14              SUPPLY OF STOCK

15              PRODUCT WARRANTIES

16              DUTIES OF THE MASTER FRANCHISEE

17              ADVERTISING, MARKETING & PROMOTION

18              DEFAULT

19              INSURANCE & INDEMNITY

20              FINANCIAL REPORTING

21              INSPECTION AND AUDIT OF FINANCIAL RECORDS

22              CONFIDENTIALITY & NON-DISCLOSURE

23              OPERATIONS MANUAL

24              ASSIGNMENT

25              TERMINATION

26              EFFECT OF TERMINATION

27              NON-COMPETE

28              FRANCHISING CODE OF CONDUCT

29              RELATIONSHIP OF PARTIES  25

30              ENTIRE AGREEMENT

31              GOVERNING LAW

32              FORCE MAJEURE

33              INTERPRETATION

34              DISPUTE RESOLUTION

35              SERVICE OF NOTICES

36              WAIVER

37              SEVERABILITY

38              COST AND (STAMP) DUTY

39              FURTHER ASSURANCE

40              INJUNCTION & INTERLOCUTARY RELIEF

41              WARRANTIES AND RESPRESENTATIONS OF MASTER FRANCHISEE

42              DIRECTORS GUARANTEE

SCHEDULE