Franchisor’s Required Disclosures: Franchisee’s Obligations

by Mario Herman, Esq.

This article presents an explanation of the section in the Franchise Disclosure Document that presents the obligations of the franchisee under the franchise agreement. Franchise candidates should understand this important section in the disclosure document.

In Item 9 of the Franchise Disclosure Document (FDD) a franchisor is require to disclose to a prospective franchisee an easy to understand guide to twenty-five (25) enumerated contractual obligations that are common in franchise relationships. The franchisor is also required to cross reference to the specific sections of the franchise agreement and disclosure document that discuss each obligation in greater detail. Item 9 facilitates review the FDD by enabling a prospective franchisee to find and review the contractual provisions detailing their legal obligations, better ensuring that prospective franchisees are not mislead about the nature of the franchise relationship. Moreover, to the extent that legal obligations are spelled out in any ancillary agreements, franchisors must direct prospects to those provisions as well.

In table format, the franchisor is required to disclose the franchisees obligations as to: site selection and acquisition/lease; pre-opening purchase/leases; site development and other pre-opening requirements; initial and ongoing training; opening; fees; compliance with standards and policies/operating manual; trademarks and proprietary information; restrictions on products/services offered; warranty and customer service requirements; territorial development and sales quotas; ongoing product/service purchases; maintenance, appearance, and remodeling requirements; insurance; advertising; indemnification; owner’s participation/management/ staffing; records and reports; inspections and audits; transfer; renewal; post-termination obligations; non-competition covenants; dispute resolution; and any other the franchisor wishes to disclose.

Each of the above disclosure requirements will be listed in table format, as follows:

Item 9 Table:
Franchisee’s Obligations

This table lists your principal obligations under the franchise and other agreements. It will help you find more detailed information about your obligations in these agreements and in other items of this disclosure document.

An experienced franchise law attorney can assist you in reviewing each item listed under Item 9, and examine the FDD in conjunction with the franchise agreement to determine if there are any onerous obligations you may wish to negotiate prior to entering into the franchise agreement. An experienced franchise law attorney can also assist you in determining whether there are any red flags or inconsistencies between the FDD and your obligations under the franchise agreement.

Mr. Herman, licensed in Washington, D.C., represents franchisees domestically and internationally in negotiation, mediation, arbitration, and litigation with their franchisors.

mherman@franchise-law.com
www.franchise-law.com
www.internationalfranchiselaw.com
202-686-2886 (ph)