How to Set Terms for Multi-Unit Franchise Expansion in India

When franchising your existing business, a partner’s proposal to open several units can seem attractive. But running one successful outlet and managing a business across multiple locations are different responsibilities. For sustainable franchise expansion, link future rights to clear milestones and demonstrated capability, rather than promises alone. This guide focuses on setting the terms under which a single partner can open multiple units.

1. What do multi-unit rights actually allow?

First, clarify whether the partner will operate several units themselves or will also have the right to grant franchises to others. These are different arrangements. The right to operate units does not automatically include permission to sub-franchise. Make this distinction explicit in the agreement.

The documentation can be structured on two levels: a development agreement setting out the proposed units and expansion schedule, and a separate operating agreement for each unit. This is a practical option, not a legally prescribed format.

Also specify which document takes precedence on which matters if the two conflict. In particular, set out:

• The individual or business entity in whose name each unit will operate.
• Whether opening the next unit is a guaranteed right or requires approval once specified conditions have been met.
• Whose approval is needed to transfer operations to an affiliated entity.
• What happens to existing units if the development rights expire or are terminated.

2. Link deadlines to concrete milestones

Simply stating a final opening date is not enough. Separate the process into stages such as site approval, taking possession of the premises, preparation for building work, obtaining the necessary permissions and opening. For each stage, specify the responsible party, the evidence required and the deadline for a decision.

For example, which documents will the brand owner review after receiving a site proposal? If the information is incomplete, when does the review period begin? If a lack of response does not constitute approval, make that clear too.

Start each timeline from an identifiable event, such as signing the agreement or taking possession of approved premises. Avoid starting points that the parties could interpret differently.

Distinguish delays by cause: inadequate preparation by the partner, slow approvals from the brand owner, obstacles involving the landlord or administrative procedures. Establish a process for requesting extensions, including notice, supporting evidence and a revised schedule. Automatically excusing every delay and treating every delay as a breach are equally impractical.

3. Check capacity before approving the next unit

Permission to expand should not depend solely on the first unit having opened. Assess whether the partner can invest in the next unit while continuing to meet the needs of the existing business. Diverting cash from one unit to open another can weaken the entire group.

Include the following in a predefined assessment:

• Evidence of funds available for investment in the new unit and its initial operations.
• The status of payments due and essential expenditure at existing units.
• A designated manager for each location and arrangements for oversight across the units.
• A plan to resolve any outstanding serious compliance issues.

Make the criteria clear enough for the partner to prepare in advance. Rather than relying on a vague condition such as “to the brand owner’s satisfaction”, specify the evidence required and the review process. Allow an opportunity to address shortcomings, and record in writing any reasons for withholding approval for a new unit. This keeps expansion decisions grounded in agreed criteria rather than personal preferences.

4. Prepare the documents in line with Indian law

India has no standalone comprehensive franchise law, central franchise register or mandatory franchise-specific pre-contract disclosure regime. Nor is there a government-mandated franchise code of conduct. This does not mean that multi-unit development agreements fall outside generally applicable laws.

The Indian Contract Act, 1872 provides the main framework for contractual validity, free consent, performance and remedies for breach. It is essential to avoid false claims and misrepresentations about future expansion, support or rights.

In the context of the Trade Marks Act, 1999, permission to use the brand should clearly cover each authorised unit and its operator. Restrictive arrangements may need review under the Competition Act, 2002. The Consumer Protection Act, 2019, tax rules, and state and local laws governing operations also apply as relevant to the business. A development agreement is not a substitute for the permissions required for a new unit.

5. Set proportionate consequences for missed targets

Rather than stipulating that a failure to meet expansion commitments will immediately trigger the closure of all existing units, set out a range of consequences. Possible options include giving notice, allowing a period to remedy the failure, revising the development schedule and withdrawing rights to future units. Define clearly when each option applies.

If a default at one unit will affect agreements for other units, specify the basis and limits of that provision. Do not treat a minor delay in the same way as a serious breach affecting the entire relationship. Recovery of a predetermined compensation amount is not automatically guaranteed; have the provision reviewed under contract law.

Practical takeaway: Before granting multi-unit rights, draw up a joint schedule showing each milestone, the responsible party, the evidence required, the deadline and the consequence of a failure to comply. After legal review, incorporate that schedule into the agreement.