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The Sub Franchise Agreement is utilized in multi-tiered franchise systems where a master franchisee has been granted rights to sub-franchise a business concept within Germany. This document is essential when expanding franchise operations through a hierarchical structure, particularly in situations where local market expertise and closer operational oversight are required. The agreement must comply with German legal requirements, including civil law (BGB), commercial law (HGB), competition law, and EU regulations such as GDPR. It typically includes detailed provisions for intellectual property rights, territorial exclusivity, operational standards, fee structures, and reporting requirements. The Sub Franchise Agreement needs to carefully balance the rights and obligations between all three tiers of the franchise system while ensuring proper protection of the franchise brand and system integrity.

1. Parties: Identification of the master franchisee (as sub-franchisor) and sub-franchisee, including full legal names, registration details, and addresses

2. Background: Context of the agreement, including reference to the master franchise agreement, confirmation of master franchisee's authority to grant sub-franchises, and brief description of the business system

3. Definitions: Comprehensive definitions including specific terms related to the three-tier franchise structure, territory, know-how, and intellectual property rights

4. Grant of Sub-Franchise: Specific rights granted to sub-franchisee, including territorial rights, scope of license, and relationship with master franchise agreement

5. Term and Renewal: Duration of the agreement, conditions for renewal, and relationship with master franchise agreement term

6. Fees and Payments: Initial fees, ongoing royalties, marketing contributions, payment terms, and VAT considerations

7. Obligations of Master Franchisee: Training, support, supply of products/services, and ongoing assistance obligations

8. Obligations of Sub-Franchisee: Operational requirements, compliance with system standards, reporting obligations, and minimum performance requirements

9. Intellectual Property Rights: Usage rights, restrictions, and protection of trademarks, trade secrets, and know-how

10. Confidentiality: Protection of confidential information, trade secrets, and data protection compliance

11. Non-Competition and Non-Solicitation: Restrictions during and after the agreement term, compliant with German competition law

12. Reporting and Audit Rights: Financial reporting requirements, record-keeping obligations, and inspection rights

13. Default and Termination: Termination grounds, procedures, and consequences, including relationship with master franchise agreement

14. Post-Termination Obligations: De-identification, return of materials, and continuing obligations

15. Assignment and Transfer: Restrictions on transfer of rights and change of control provisions

16. Governing Law and Jurisdiction: German law as governing law and jurisdiction provisions

17. General Provisions: Standard boilerplate clauses adapted to German law requirements