A Multi-Unit Development Agreement or “MUDA” gives a developer the right to open multiple units within an agreed-upon area during a particular development timeframe. A MUDA is not a franchise agreement. It does not give the developer the right to open and operate a particular outlet. Instead, it is essentially a reservation of territory. Provided that the developer isn’t in default of any other agreements with you and is following the development schedule, you will reserve the territory for the developer’s future development.
Best Practice
When you sign the MUDA, the developer should sign the first franchise agreement for the first outlet at the same time. Once the developer signs a lease for the first outlet, is when we recommend the developer sign their second franchise agreement for the second outlet in the development schedule. The franchise agreement gives the developer the right to establish and operate a store and can represent as much to potential landlords. Upon the developer signing the lease for the second outlet, the developer should then sign a franchise agreement for the third outlet in the development schedule, and so forth.
Fees for Multiple Units
A good rule of thumb for the Development Fee is that you charge up front 100% of the initial franchise fee for the first outlet and 50% of the initial franchise fee for each additional outlet. The balance of the initial franchise fee for each additional outlet is due when the franchise agreement for that outlet is signed. This formula is the industry standard, so it’s not a law or a rule, and you’re welcome to change it, but most franchisors want their agreement to follow industry standards in this area.
And finally, a word of caution: Be careful with how large a territory you give someone. We’ve found the majority of multi-unit developers never open the number of units that are in their schedule.
