Buying a Franchise: Check How Long the Master Franchise Rights Last

Buying a franchise does not always mean entering into an agreement directly with the brand owner. The offer may come from a business authorised to develop the network and grant sub-franchises. This arrangement can create business opportunities, but it adds another layer of risk: your outlet’s continuity also depends on a contractual relationship between other parties. Before paying, make sure the rights being offered are valid for the full operating term promised.

1. Understand the chain of rights

Indonesia’s Government Regulation No. 35 of 2024 on Franchising recognises sub-franchisors (Pemberi Waralaba Lanjutan) and sub-franchisees (Penerima Waralaba Lanjutan). Franchise relationships in Indonesia therefore extend beyond the business system owner and its first franchisee. They can also involve rights being granted onwards to another party.

Do not assume the seller’s legal position from labels such as “Indonesian head office”, “national brand rights holder” or “lead partner”. Ask for a written explanation of who the original franchisor is, who holds the development rights in Indonesia, and which legal entity will be the counterparty to your agreement.

Draw a simple diagram showing how the rights pass down to your outlet. Then ask:

• Is the business offering the package authorised to grant sub-franchises, rather than merely operate its own outlets?
• Does that authority cover the territory and outlet format being offered?
• Does opening your outlet require additional approval from the original franchisor?
• Are there any outstanding conditions that must be met before those rights can be exercised?

The aim is not simply to identify the brand owner, but to establish that the right to operate an outlet can lawfully be granted to you.

2. Compare three key dates

Ask for adequate evidence of the master agreement’s expiry date, your agreement’s start date and your agreement’s expiry date. These dates need to be considered together, not checked in isolation.

For example, a prospective franchisee might be offered a contract that runs beyond the remaining term of the seller’s rights. Do not assume this is safe simply because the seller says its master agreement is “usually renewed”. An expectation of renewal is not the same as an existing right.

Also check whether renewal of the master agreement depends on network development targets, particular payments or approval from the original franchisor. You do not need to audit their entire commercial relationship, but you do need to understand any conditions that could affect your outlet’s continuity.

If the master agreement is confidential, suggest having a legal adviser review the relevant sections, obtaining a redacted copy, or seeking written confirmation from the original franchisor. The evidence should show the scope and duration of the rights, along with any provisions affecting sub-franchises. Marketing statements alone are not enough to assess this risk.

3. Establish what happens to your outlet if the master rights end

The end of the relationship between the original franchisor and the master franchisee can create problems that are not of your making. For example, who will then provide the ordering system, training or supplies needed to run your outlet?

Do not assume the original franchisor is automatically obliged to take over your contract. Whether the arrangement can continue must be checked against the documents and the relevant parties’ consent. A promise from the seller does not, by itself, bind another party that has not agreed to it.

Ask for a proposed written arrangement addressing four points:

1. Notification: when will you be told if the master rights are terminated or will not be renewed?
2. Business continuity: is there an option to contract directly with the original franchisor or transfer to a replacement master franchisee, and whose approval is required?
3. Transition period: who will provide system access and support during the transition, for as long as use of the rights remains permitted?
4. Payments: how will fees already paid for services or periods of use that can no longer be provided be treated?

If you are offered protection through a takeover by the original franchisor, ask a legal adviser to examine how that consent is documented. Distinguish between protection that has actually been agreed and a plan that would still require fresh negotiations.

4. Make clarity over rights a condition of the transaction

Government Regulation No. 35 of 2024 requires both franchisors and sub-franchisors to provide a Franchise Offering Prospectus at least 14 calendar days before the agreement is signed. Use this document to cross-check the parties’ identities and the description of the business relationship against the evidence of authority to grant sub-franchise rights.

List any unresolved issues: the remaining term of the rights, approval to open the outlet, options for continuing the contract, and responsibility if the master rights end before your agreement does. Ask for written answers before making a payment commitment that is difficult to reverse.

If renewal of the master rights is still being processed, consider postponing the transaction or negotiating a condition that it proceeds only once evidence of renewal is available. This is a contractual safeguard that must be agreed, not an automatic right you can assume already exists.

The bottom line: do not buy a franchise term that the sub-franchisor’s rights cannot yet support. Make sure the chain of rights, their validity dates and the arrangements for your outlet’s continuity are clear before signing.