The Costliest Mistake Multi-Unit Franchisees Make in Their Agreements

For franchisees who operate multiple locations, the stakes are far higher than most realize. The legal review of multi-unit franchise agreements isn’t about a single contract—it’s about understanding how your development agreement and the multiple franchise agreements you sign for each unit work together. Overlooking the interplay between these documents is one of the costliest mistakes a multi-unit franchisee can make.

Most owners focus on securing great locations, building strong teams, and driving sales. But the real danger often hides in the fine print. Development agreements dictate how many units you are required to open and the deadlines for each opening. Each franchise agreement governs one location. Together, they create a web of obligations where a misstep in one place can trigger consequences across your entire operation.

At Luther Lanard, we represent multi-unit franchisees across the country, and we see how easily preventable problems can derail expansion plans. Our franchise attorneys specialize in identifying these interconnected risks before they become costly mistakes.

The most dangerous trap? Cross-default provisions. These clauses allow franchisors to terminate every location you own if you default on just one. Imagine losing an entire portfolio because a single unit had a temporary health code violation or a landlord dispute.

This article reveals the hidden risks, highlights the clauses that can quietly erode your control, and explains how an expert legal review can protect your investment and growth.

Understanding the Multi-Unit Franchisee Contract Structure

No Single “Multi-Unit Franchise Agreement”

Multi-unit franchisees don’t sign one master “multi-unit” franchise agreement. Instead, the structure usually includes both of the following:

• A Development Agreement – Also commonly known as a Multi-Unit Development Agreement (MUDA) or an Area Development Agreement (ADA), this outlines the number of units that must be opened, deadlines for each, and penalties for delays.

• Individual Franchise Agreements – Separate agreements for each unit, each with its own obligations, compliance requirements, and operational terms. Franchisors update their FDDs annually, and units opened in subsequent years may come with higher royalty rates, increased fees, stricter requirements, or other material differences.

Why Legal Review Is Complex

A proper franchise agreement review must examine the development agreement and every franchise agreement as a package. This is not a one-time event.  Each time you open a new location, you’ll sign a franchise agreement based on the franchisor’s current FDD, which should be reviewed to identify changes from your existing agreements and assess how those changes impact your entire portfolio.  Here’s where risks multiply:

• Cross-default clauses can make a single breach a portfolio-wide event.

• Renewal timelines may not align, creating pressure to accept unfavorable terms.

• Fees can escalate as more units open, cutting into margins.

Ignoring these interactions is a recipe for operational and financial trouble.  Our franchise legal team reviews development and franchise agreements as an integrated package, ensuring you understand how each provision impacts your entire portfolio before you sign.

The Core Problem: Overlooking How Agreements Interact

Many franchisees make the mistake of reviewing each franchise agreement in isolation, without considering:

• How deadlines in the development agreement affect operational decisions

• How cross-default clauses link all agreements together

• How fees or obligations escalate with each new unit

Example: A franchisee commits to opening five locations in five years. The development agreement has aggressive build-out deadlines, while the franchise agreements include strict compliance rules. One location has a landlord dispute that causes a temporary closure—triggering a default. Because of cross-default language, the franchisor can terminate all five agreements, even though four locations are running smoothly.

We’ve helped franchisees negotiate out of similar situations—and better yet, we’ve helped clients avoid them entirely through careful agreement review and strategic negotiation. Without a legal review that examines the collective impact of all agreements, this type of chain-reaction risk often remains hidden until it’s too late.  

The Biggest Risks Multi-Unit Franchisees Face

Cross-Default Clauses
For example, if you own 10 fast food locations and one location is shut down for a rat infestation, the franchisor can terminate the agreement for that store—and use the cross-default clause to terminate the other nine, even if they’re compliant. This risk is magnified when development deadlines are tied to your right to keep operating.

Hidden Fee Escalations
Some systems use tiered royalty rates, aggregate marketing contributions, or technology fees that increase automatically as you open more units. A 5% royalty for a single unit might effectively become 7% when calculated on combined sales.

Territory Limitations
Franchisees often believe they have exclusive rights to expand in a geographic area, but vague territory clauses can allow the franchisor to open competing locations—or approve another franchisee’s store—nearby.

Inflexible Renewals
If renewals are linked, underperforming units may force you to renew all locations under unfavorable terms—or walk away from even your high-performing units.

Compliance Pressures
Brand standards are important, but enforcing identical requirements across very different markets can create operational strain.

Our attorneys have seen each of these scenarios play out in real franchise disputes. The good news? Most are negotiable if you know what to ask for and when to push back. That’s where experienced franchise counsel makes the difference.

Development Agreement Pitfalls That Can Sink Growth

A development agreement sets the roadmap for your multi-unit rollout. But it can also set you up for failure if not negotiated carefully. Common pitfalls include:

• Unrealistic Timelines – Forcing build-outs before financing or construction resources are secured.

• Liquidated Damages – Automatic financial penalties if you miss an opening deadline.

• Loss of Future Rights – Missing one deadline could cancel your rights to open remaining units.

How Franchisees Get Into Trouble

Franchisee Oversight – Assuming agreements are “standard” and skipping a specialist review.

Franchisor Advantage – Drafting documents to protect their interests, often with aggressive development schedules and broad default triggers.

Myth of Uniformity – Believing that all franchise systems’ agreements are essentially the same, ignoring the unique risks in each.

Our role is to level the playing field by bringing franchise-specific expertise to your side of the negotiating table.

The Top 5 Elements of a Perfect Legal Review for Multi-Unit Franchisees

1. Development Schedule Terms

Deadlines must be achievable. Look for flexibility in the event of construction delays, financing issues, or market shifts.

2. Cross-Default Provisions

Negotiate to limit them—ideally removing the link between unrelated units. At minimum, require defaults to be “material” before triggering portfolio-wide termination.

3. Fee Structures

A legal review should calculate long-term fee exposure across your full build-out plan.

4. Renewal & Termination Rights

Separate renewal timelines allow you to keep profitable units while closing underperforming ones.

5. Territory & Expansion Rights

Secure clearly defined territories, ideally with performance-based expansion rights.

Why Expert Legal Review Is Critical

An expert legal review isn’t just risk mitigation—it’s a growth strategy. When you work with our franchise attorneys, we:

• Identify hidden dangers and negotiate to remove or limit them where possible

• Advocate for stronger expansion rights and clearer territorial protections

• Push for flexible renewal and exit options

• Explain how each provision impacts your long-term investment goals

While not every term is negotiable, our experience representing multi-unit franchisees nationwide means we know which battles to fight and how to position your requests for the best outcome.

Practical Steps for a Strong Legal Review

1. Hire Franchise-Specific Counsel – Use attorneys who focus on franchise law and multi-unit portfolios.

2. Review Agreements as a Set – Development and franchise agreements must be analyzed together.

3. Flag Cross-Agreement Risks – Especially cross-defaults, fee escalations, and territory restrictions.

4. Plan Renewals Early – Avoid being forced into unfavorable renewals by misaligned timelines.

5. Negotiate at the Right Time – Before signing is when you have the most leverage.

Learn More About Our Legal Review of Multi-Unit Franchise Agreements at Luther Lanard 

The biggest mistake multi-unit franchisees make isn’t operational—it’s contractual. Without a precise, expert legal review of the individual franchise agreements and your development agreement, you’re leaving your portfolio exposed to risks that can destroy years of hard work and investment.

At Luther Lanard, we help multi-unit franchisees across the country navigate these complex agreements, negotiate better terms, and build protections that support long-term growth. Whether you’re signing your first development agreement or adding your tenth location, our franchise attorneys ensure you understand exactly what you’re agreeing to—and fight for terms that work for you, not just the franchisor.

Don’t wait until a crisis forces your hand. Contact Luther Lanard today at FranchiseeLawyer.com or call 949-649-4241 to schedule a consultation and safeguard your investment.

Frequently Asked Questions (FAQs)

1. What does a legal review for a multi-unit franchisee involve?
   It examines your development agreement and all franchise agreements to identify risks like cross-defaults, hidden fees, and territory restrictions.
2. Is there such a thing as a “multi-unit franchise agreement”?
   No—you sign multiple individual franchise agreements plus a development agreement.
3. How do cross-default clauses affect multi-unit franchisees?
   They let a franchisor terminate all your agreements if one location defaults—regardless of others’ performance.
4. Can I negotiate my development agreement?
   Yes—our franchise attorneys can negotiate to secure better timelines, territory protections, and reduced penalties.
5. How often should I review my agreements?
   Before signing, before renewals, and before adding new units.
6. What fees should I watch for?
   Tiered royalties, aggregate marketing fees, and system-wide technology charges.
7. How can I protect my territory rights?
   By getting clear, enforceable clauses in your agreements.
8. What happens if I miss a development deadline?
   You could lose development rights, pay penalties, or face termination.
9. Should renewals be tied together?
   Independent renewals generally give more flexibility.
10. Who at your firm handles multi-unit franchisee matters?
    All of our attorneys at Luther Lanard are experts in franchise law and represent multi-unit franchisees nationwide. We handle development agreements, franchise agreement reviews for each new location, renewal negotiations, dispute resolution, and portfolio sales or acquisitions.  Schedule a consultation to discuss your specific situation.