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Multi-Unit Franchise Agreements

What Are Multi-Unit Franchisees?

Multi-unit franchisees are franchisees who own multiple franchise business units simultaneously. In other words, rather than just owning one franchise location, multi-unit franchisees own two or more. In the past, multi-unit franchisees were something of a rarity, but these franchisees have greatly increased in number in recent years. Presently, about one-half of all franchisees in the country are multi-unit franchisees. The cause of this increase is based on several factors. One factor is that owning multiple franchise locations is an effective way to diversify one’s portfolio and minimize financial risk. Whatever the reasons, this trend is unmistakable, and so prospective franchisees should consider the possibility of purchasing multiple franchise units.

The Multi-Unit Franchise Agreement

To become a multi-unit franchisee, the buyer signs a contract referred to as a multi-unit franchise agreement. The multi-unit franchise agreement is quite similar in its structure to the typical, single-unit franchise agreement, but differs a bit in content. The multi-unit franchise agreement will include information about the parties, disclosures, ownership details, objectives, license issues, franchise payments, franchisee services, territory, start date, operations, governing law, obligations, arbitration, and so forth. This information is common to both multi-unit and single-unit agreements.

The multi-unit franchise agreement will also be accompanied by another agreement, however, and this additional agreement is not something found in single-unit agreements. This additional agreement is referred to as an “area developer agreement” (“ADA”).

What is a Franchise Area Developer?

The area developer agreement is the supplemental agreement which needs to be created and executed whenever a multi-unit franchise transaction comes about. This additional agreement provides information about the multi-unit franchise deal. For instance, the ADA will include the number of units being bought, along with the opening date for all locations. The ADA will also indicate the geographic position of each unit. The ADA is an essential part of any multi-unit franchise deal; without this document, the transaction cannot be completed. Having a qualified franchise law attorney to assist with your ADA is strongly advised.

Benefits of a Multi-Unit Franchise

There are many benefits of multi-unit franchise deals, both for the buyer and the seller. This is why these transactions have become as frequent as they have become in recent years. As mentioned, buyers gain the benefit of diversifying their portfolio. Consequently, if a certain geographic region suffers from a difficult economic trend, this won’t necessarily affect all of a buyer’s franchise locations. Buyers may be better equipped to weather difficult economic periods because of their diversified holdings. The drawback, of course, is that buying multiple units comes with a heftier initial fee; this, by itself, can sometimes deter prospective franchisees. However, for those who have the means, the benefits of multi-unit franchise arrangements typically outweigh the costs.

Sellers gain the benefit of greater initial start-up fees, fewer owners to manage, accelerated growth, as well as strategic location planning. When a buyer and seller are aware at the outset that multiple locations will be developed, they can collaborate in order to ensure that the units are placed strategically.

Contact a Top South Florida Business Law Firm Today

Multi-unit franchise agreements are far more common today than they were in the not-too-distant past. This is because more and more franchisees are recognizing the benefits of these arrangements. If you’re interested in becoming a multi-unit franchisee, you need to procure the services of an experienced franchise law attorney. An experienced attorney will help you develop a workable multi-unit franchise agreement. These agreements are complex, involve unusual terminology, and can often be misinterpreted without expert assistance. Call the Trembly Law Firm today for guidance on multi-unit franchise agreements.

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