The franchisor will naturally be anxious that any franchisee who has been granted exclusivity will exploit its territory properly. This is particularly so in Master Franchise/Development Agreements. For example, if after the first 3 years only one outlet has been opened up in the territory something is clearly going wrong. It is a particularly acute problem if exclusive rights to the territory have been granted. Non-exploitation will mean that the entire territory will be completely paralysed leaving it wide open to competitors to exploit at their leisure. In such circumstances, the franchisee must have the power to take steps to prevent the non-exploitation of the franchise.

The most commonly adopted approach to this problem in master franchises/development agreements is the inclusion of a target clause or development schedule, which provides for a set number of outlets to be opened and/or a level of turnover each year in the territory by the subfranchisor/developer. Such a provision can remove the threat of stagnation or sterilisation from a territory, but by the same token it can actually create problems if it has not been properly thought through. A development schedule that imposes a requirement to move ahead too rapidly will be sowing the seeds of the franchise's failure. The sub-franchisor/developer must have time to consolidate its expansion without spreading itself too thin. Getting the numbers right is therefore absolutely vital. In order to do this, the franchisor must have a good idea of the market, resources and ability of the sub-franchisor/developer. What is a reasonable schedule for the American market, where franchising is an accepted form of business, and the business culture based more on impulse than caution, may not be reasonable in Norway where franchising is still eyed with suspicion and the general approach to business more marked by conservatism.

The schedule can often be based upon the business plan which the subfranchisor/developer presents to the franchisor. This plan will by definition include an assessment of the likely growth of the network. This approach has the advantage of ensuring that the prospective sub-franchisor/developer is not too cavalier or optimistic in its preparation of the business plan.

Once the development schedule has been agreed, the franchisor must decide what the consequences of a failure to comply will be. Termination of the agreement is one obvious option. This is rather negative, however, and many prematurely end what could have been a mutually beneficial relationship.

A far more considered approach is to provide that the subfranchisor/developer has an option to make up any shortfall in the franchisor's income which directly results from any failure to open up the number of outlets specified in the schedule. Thus, if the franchisor is entitled to, say, £5,000 on the opening of each outlet and only two outlets are opened in the second year, rather than the four outlets provided for in the development schedule, the sub-franchisor/developer has the right to pay the franchisor £10,000 in order to preserve its rights under the master franchise/development agreement. It may be that a set-off against later profits is also provided for. This enables the sub-franchisor/developer to overcome problems which may have caused the shortfall in any one particular year. It may be that the development schedule provides for a certain level of sales in each year. The same considerations apply to failure to reach the target figure - although a safety margin of say 10% might be introduced. This would mean that failure to reach the target by, say, 8% would not be a material breach if it was made up for the following year. The right to make up the shortfall should not, however, be unlimited. It may be that the sub-franchisor/developer is afforded the opportunity only on two consecutive years, further failures amounting to a material breach of the master franchise/development agreement. The issue which must then be faced is how the franchisor should react to this breach.

The first option is that the sub-franchisor/developer simply loses its rights over the territory and the entire agreement is terminated. This can be very messy and will inevitably cause the franchisor a great deal of work and expense. If, apart from the failure to comply with the development schedule, the sub-franchisor/developer was acceptable, a more satisfactory alternative to complete termination may be to freeze its rights to further develop the territory but allow it to continue to run its existing outlets. A new master franchise/development agreement can then be granted to a third party with the exclusive rights to develop the territory further.

Alternatively, the sub-franchisor/developer can merely lose its exclusivity as a result of the breach, with the franchisor either exploiting the territory itself or granting a new master franchise/development agreement to a third party. It may be that a provision is included providing that if the franchisor does not commence exploitation within, say, 12 months of the loss of exclusivity, that the sub-franchisor/developer's exclusivity be restored either free of charge or at an agreed price.

It will be self-evident that the negotiation of a development schedule and the consequences of the sub-franchisor/developer failing to comply with it, is of prime importance to the successful exploitation of a territory. The exact form of the schedule will depend very much upon the various factors involved such as the size and nature of the territory, and the resources, aims, and character of the parties. A well thought out development schedule will help a franchise to succeed. An ill-conceived development scheme will quite possibly cause it to fail. The same approach can be adopted in "unit franchise agreements".