What’s an area development franchise?

As with many terms in franchising, the term ‘area development agreement’ does not have a precise legal meaning and is used to describe a number of relationships. Broadly, these relationships fall into two categories.The first is where a franchisor wants to expand, usually into a new country, but does not want to appoint a master franchisee who would effectively be the franchisor in that country. Instead the franchisor wants to make use of existing contacts to assist in recruiting and quite possibly ‘looking after’ franchisees. This type of relationship is called an area development agreement.The second approach describes the relationship between a franchisee who is granted a franchise but, in addition, is given an option to open additional franchise outlets. These types of arrangement are quite common in the UK and envisage that a prospective franchisee will not be satisfied with simply being a single territory franchisee, but would want to operate a number of territories. The right to expand into additional territories would, of course, be subject to conditions such as satisfactory performance in relation to the first and subsequent territories opened by that franchisee.An increasing number of franchisors believe that the difficulties in recruiting franchisees are such that it makes sense to look for franchisees who have the management ability and financial wherewithal to operate more than one outlet.