What’s a sub-franchise?

A franchisor may grant a third party, often called a ‘master franchisee’, the right to grant sub-franchise agreements to franchisees (usually referred to as sub-franchisees) in a defined geographic area. This arrangement with the master franchisee is regulated by the terms of a master franchise agreement. The terms of the sub-franchise agreement granted by the master franchisee to a sub-franchisee will be on the same terms as the franchisor’s standard franchise agreement. The sub-franchise agreement will usually be between the master franchisee and the sub-franchisee, rather than directly between the franchisor and the sub-franchisee.
The franchisor will often appoint a master franchisee where it wishes to expand its franchise concept internationally and where the franchisor does not have the necessary experience of the markets, practices and customs of the relevant territories into which it wishes to expand. Also, it is often difficult for a franchisor to provide sufficient ongoing assistance to its franchisees in foreign territories due to time differences and language barriers.