The franchisor may benefit from additional protection when a franchisee does not comply with one of its obligations, whether it also rents or sublets the premises where the franchise transaction is operated. This means that the franchisee has the power to evict the franchisee from the premises, especially where cross-termination clauses are included in both the lease agreement and the franchise agreement. However, this alternative should not be used by foreign companies acting as franchisees, as it can have adverse tax consequences; Rather, it is designed for Mexican companies that act as franchisors. As a general rule, master franchisees will want to grant exclusivity to the assigned area in return for the investments they are expected to make for the development of the franchise in that area. If no restrictions are imposed with respect to exclusivity, this usually means that the master franchisee has every right to franchise the transaction in the assigned territory, to the exclusion of another third party, including the franchisee himself. Master franchisees must normally comply with certain plans for the development of franchised units that may be operated exclusively by the master franchisee or its sub-franchisees. It is unusual for development officers to be required to adhere to a development plan, when it is customary to include specific objectives for agents in the corresponding agency contract. Generally speaking, a franchise allows the distribution of a product in a greater number of points of sale and regions, which solves many of the geographical concerns of large companies in the market. In this way, the company can maintain the profitability of a large chain while allowing the careful management of individual geographically distributed operations. The Franchise Code of Conduct defines a master franchise as follows: 5. Duties of the master franchisee To protect the brands and preserve the identity and reputation of the franchise network, the master franchisee agrees:- this means that there are three steps for your franchise system: in addition to the above clauses, a master franchise in an overseas territory must also deal with: Master franchisors should have strong management capabilities and/or the organization they provide. Experience in the specific sector is desirable, but not necessarily necessary; as well as franchising experience. The person or organization should also have strong distribution, marketing and operational capabilities and be able to train their franchisees to manage their own unit economy in order to provide all parties with maximum cash flow.
The third pillar is the effective management of distribution and supply, especially in retail or restaurant concepts that involve the sale and distribution of proprietary items or brands. Although there are different possibilities for setting up distribution in a given area, including (a) the master and its subcontractors purchasing from the same suppliers as those used by the franchisee in the United States or in other international masters; or (b) the franchisee who agrees to grant the potential master the rights to manufacture, distribute or otherwise as a “co-packer” with respect to the proprietary products in question, is to ensure that any structure put in place is well designed as part of the due diligence process and accurately drafted in the language of the master franchise agreement. . . .