What approval process is the Master Franchisee required to conduct for potential subfranchisees and Bhc Restaurants?
Bhc Franchise · 2025 FDDAnswer from 2025 FDD Document
g from time to time.
You will be required to conduct an approval process, including a background check, to confirm that each potential subfranchisee and each potential BHC Restaurant meet all of our then current minimum requirements for new subfranchisees and new BHC Restaurants, as the same may be amended, replaced or supplemented by us from time to time. We also have the right, upon written notice to you, at our sole discretion, to approve or disapprove any or all potential subfranchisees and potential BHC Restaurants. You may not directly operate any BHC Restaurant under the MFA, but may only do so through an affiliate that enters into a Franchise Agreement with BHC. A "Affiliate Franchised BHC Restaurant" means a BHC Restaurant that is or will be established and operated by an affiliate of the Master Franchisee, and a "Subfranchised BHC Restaurant" means a BHC Restaurant that is or will be established and operated by a Subfranchisee that is a third party and not your affiliate.
In order to maintain your Development Rights under the MFA, you must establish and operate the cumulative number of Master Franchised BHC Restaurants (including Affiliate Franchised BHC Restaurants and Subfranchised BHC Restaurants) in the Development Area by the dates specified in the applicable development schedule, as further described in Item 12. In addition, you must establish and operate at least one (1) Affiliate Franchised BHC Restaurant within the Development Area pursuant to a separate then-current Franchise Agreement before you may grant subfranchises to third parties for the establishment and operation of Subfranchised BHC Restaurants within the Development Area.
Source: Item 1 — The Franchisor, And Any Parents, Predecessors, And Affiliates (FDD pages 7–10)
What This Means (2025 FDD)
According to Bhc's 2025 Franchise Disclosure Document, a Master Franchisee is required to conduct an approval process for potential subfranchisees and Bhc Restaurants. This process includes a background check to ensure that they meet Bhc's minimum requirements for new subfranchisees and restaurants. These requirements may be amended or supplemented by Bhc from time to time.
Bhc also retains the right to approve or disapprove any or all potential subfranchisees and Bhc Restaurants at its sole discretion, providing written notice to the Master Franchisee. This means that even if a subfranchisee meets the Master Franchisee's initial screening criteria, Bhc has the final say in their approval. The Master Franchisee cannot directly operate a Bhc Restaurant under the Master Franchise Agreement (MFA) but can do so through an affiliate that enters into a separate Franchise Agreement with Bhc.
Furthermore, the Master Franchisee is responsible for preparing a subfranchise agreement and any other related agreements, such as area development agreements or lease addendums, for use with prospective subfranchisees. These agreements must receive prior written approval from Bhc. Once approved, the Master Franchisee cannot modify the terms of these documents without submitting the changes to Bhc for their written approval. The terms and conditions within these agreements must align with the Master Franchise Agreement and any guidelines prescribed by Bhc, including the maximum territory size granted under any Subfranchise Agreement.
This process ensures that all subfranchisees and Bhc Restaurants meet the standards set by Bhc, maintaining consistency and quality across the brand. It also gives Bhc ultimate control over who operates under their name, even within a master franchise arrangement. The Master Franchisee must navigate both their own approval process and Bhc's final approval, adding a layer of complexity to subfranchise development.