The Sub Franchise Agreement is a crucial document used when a master franchisee, who holds rights from the original franchisor, wishes to grant franchise rights to third parties (sub-franchisees) within Hong Kong. This agreement type is particularly relevant in the Hong Kong market where many international brands expand through multi-tiered franchise structures. The document must comply with Hong Kong's common law system and relevant ordinances, including those governing contracts, intellectual property, and competition law. It typically includes detailed provisions on operational standards, financial terms, territory rights, and brand protection measures. The agreement serves as the primary legal framework governing the relationship between the master franchisee and sub-franchisee, ensuring consistency in brand standards while adapting to local market requirements.
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1. Parties: Identification of the master franchisee (as sub-franchisor) and sub-franchisee
2. Background: Context of the agreement, including reference to the master franchise agreement and authority to grant sub-franchises
3. Definitions: Key terms used throughout the agreement
4. Grant of Sub-Franchise: Scope of rights granted, territory, and exclusivity terms
5. Term and Renewal: Duration of the agreement and conditions for renewal
6. Fees and Payments: Initial fees, ongoing royalties, advertising contributions, and payment terms
7. Obligations of Sub-Franchisor: Support, training, and assistance obligations of the master franchisee
8. Obligations of Sub-Franchisee: Operational requirements, compliance with system standards, and reporting obligations
9. Intellectual Property: Use of trademarks, copyright materials, and protection of intellectual property
10. Confidentiality: Protection of confidential information and trade secrets
11. Training: Initial and ongoing training requirements
12. Quality Control: Maintenance of standards and inspection rights
13. Marketing and Advertising: Marketing obligations and restrictions
14. Records and Reporting: Record-keeping requirements and reporting obligations
15. Transfer and Assignment: Restrictions on transfer of rights and change of control
16. Termination: Grounds for termination and termination procedures
17. Post-Termination Obligations: Obligations following termination or expiry
18. Governing Law and Dispute Resolution: Applicable law and dispute resolution mechanisms
19. General Provisions: Standard boilerplate clauses including notices, entire agreement, and amendments
1. Development Schedule: Required when the sub-franchisee has obligations to open multiple units within specified timeframes
2. Supply Chain Requirements: Needed when specific suppliers or supply chain arrangements are mandatory
3. Insurance: Detailed insurance requirements beyond standard coverage
4. Data Protection: Specific provisions for handling customer data and compliance with privacy laws
5. Local Adaptation: Required when allowing modifications to the system for local market conditions
6. Right of First Refusal: Option for sub-franchisee to acquire additional territories or rights
7. Non-Compete Provisions: Additional restrictions on competitive activities
8. Guarantee: Personal or parent company guarantees for sub-franchisee obligations
9. Emergency Management: Procedures for handling crisis situations or force majeure events
1. Territory Description: Detailed description or map of the granted territory
2. Initial Fees and Ongoing Payments: Detailed breakdown of all financial obligations
3. Required Equipment and Specifications: List of required equipment, furniture, and fixtures
4. Operating Manual Summary: Key provisions and requirements from the operating manual
5. Training Program: Details of initial and ongoing training requirements
6. Approved Suppliers: List of approved suppliers and products
7. Brand Standards: Detailed specifications for use of trademarks and brand elements
8. Form of Confidentiality Agreement: Template for confidentiality agreements with employees
9. KPIs and Reporting Templates: Performance metrics and standard reporting formats
10. Insurance Requirements: Detailed insurance coverage requirements
11. Form of Guarantee: Template for personal or corporate guarantee if required
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