What are 'Development Rights' for Bhc, and how do they relate to subfranchises?
Bhc Franchise · 2025 FDDAnswer from 2025 FDD Document
Under the MFA, you will be granted the right and license: (i) to grant subfranchises for the establishment and operation of BHC Restaurants, as defined below, within the Development Area ("Development Rights") to third party subfranchisees that meet our requirements ("Subfranchisees") by entering into Subfranchise Agreements (as defined below) ("Subfranchised BHC Restaurants"); and (ii) to directly own and operate through an affiliate of the Master Franchisee ("Affiliate Franchisee") ("Affiliate Franchised BHC Restaurants") within the Development Area once opened, and to support, and receive fees from, as applicable, all Master Franchised BHC Restaurants within the Development Area once opened ("Operating Rights").
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.
You are responsible for preparing and seeking our prior written approval of the form subfranchise agreement ("Subfranchise Agreement") and any other form agreements, including an area development agreement or lease addendum (collectively, "Other Agreements"), you intend to use with your prospective subfranchisees or Subfranchisees. In addition, once we have approved a form Subfranchise Agreement or Other Agreement, you may not modify the terms of such form documents without submitting to and receiving our prior written approval. Your form Subfranchise Agreement and Other Agreements must include terms and conditions consistent with your MFA and as we prescribed from time to time, including the maximum size of the territory granted under any Subfranchise Agreement or Other Agreement.
Further, you are solely responsible for preparing, amending and annually updating a franchise disclosure document ("Subfranchise FDD") to use in offering and selling subfranchises for BHC Restaurants to prospective subfranchisees in accordance with all Franchise Laws (although, upon your request, we will provide relevant information about ourselves and our business to include in your Subfranchise FDD), registering your Subfranchise FDD with the states, as applicable, properly providing your Subfranchise FDD to us and to prospective subfranchisees and complying with all applicable waiting periods before a prospective subfranchisee pays any consideration to you or your Affiliates or signs a binding agreement, and requesting information from us to allow you to prepare, amend, update and register your FDD in a timely manner.
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, 'Development Rights' grant the master franchisee the right and license to grant subfranchises for the establishment and operation of Bhc restaurants within a specific Development Area to third-party subfranchisees who meet Bhc's requirements. These subfranchisees operate 'Subfranchised Bhc Restaurants' under Subfranchise Agreements. The master franchisee also has the right to directly own and operate Bhc restaurants through an affiliate within the Development Area, referred to as 'Affiliate Franchised Bhc Restaurants.'
The master franchisee's ability to grant subfranchises is tied to maintaining their Development Rights. To do so, they must establish and operate a cumulative number of Master Franchised Bhc Restaurants (including both Affiliate Franchised and Subfranchised locations) within the Development Area by specific dates outlined in a development schedule, as detailed in Item 12 of the FDD. Furthermore, the master franchisee must first establish and operate at least one Affiliate Franchised Bhc Restaurant before they can grant subfranchises to third parties.
The master franchisee is responsible for creating a subfranchise agreement, which Bhc must approve. Once approved, the master franchisee cannot change the agreement without Bhc's written consent. The subfranchise agreement must align with the master franchise agreement and Bhc's requirements, including territory size limits. The master franchisee is also responsible for preparing and updating a franchise disclosure document (Subfranchise FDD) for prospective subfranchisees, ensuring compliance with all applicable franchise laws. While Bhc will provide relevant information for inclusion in the Subfranchise FDD, the master franchisee bears the ultimate responsibility for its accuracy and legal compliance.