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Many franchisees and even some franchisors do not clearly understand what a development arrangement is. In its simplest form, a development arrangement is an agreement whereby a franchisee (commonly known as a developer) agrees with a franchisor to open and operate multiple franchised units of the same type. Typically, a development arrangement involves the opening of those franchised units within a set geographical area. The issues around development arrangements can be complicated and prior to entering into an agreement to develop multiple unit franchises, both the developer and the franchisor need to carefully consider a number of important issues, including the following:
Franchisors and franchisees who are considering entering into a development arrangement should ensure they fully understand what a development arrangement is and the particular issues that commonly arise when development rights are granted. Failure to consider these issues at the outset often leads to disputes down the road.