Franchise Agreement & FDD Review Attorney

Understanding the Franchise Disclosure Document (FDD)

The Franchise Disclosure Document (FDD) is a federally mandated disclosure document governed by the FTC Franchise Rule (16 CFR Part 436). Federal law requires that the FDD be delivered at least 14 days before execution of a binding agreement or payment of consideration.

The FDD is a disclosure document — not the operative contract. Its purpose is to provide transparency regarding the franchisor’s history, financial condition, fees, and system performance. The Franchise Agreement attached in Item 22 governs enforceable rights.

Key Items we review include:

• Item 3 – Litigation history

• Item 5 – Initial franchise fees

• Item 6 – Ongoing royalties and other fees

• Item 7 – Estimated initial investment

• Item 8 – Supplier restrictions

• Item 12 – Territory rights and encroachment policies

• Item 17 – Renewal, termination, transfer, and dispute provisions

• Item 19 – Financial Performance Representations (if provided)

• Item 21 – Audited financial statements

The FDD is a disclosure document — not the operative contract. Its purpose is to provide transparency regarding the franchisor’s history, financial condition, fees, and system performance. The Franchise Agreement attached in Item 22 governs enforceable rights.

The Franchise Agreement: Binding Rights & Obligations

While the FDD discloses information, the Franchise Agreement governs your legal rights for the duration of the franchise term — often five to twenty years.

These agreements are drafted by the franchisor and heavily system-controlled. Once executed, they define:

• Term length and renewal conditions

• Operational standards and control provisions

• Mandatory purchasing requirements

• Default triggers and cure periods

• Liquidated damages and acceleration clauses

• Personal guaranty liability

• Non-compete and post-termination restrictions

• Arbitration clauses and venue selection

Many provisions are standardized across the franchise system. Some terms, however, may be negotiable depending on market strength, franchisee experience, or multi-unit commitments.

Understanding the Franchise Agreement before signing is essential. Once executed, it governs operational control, termination risk, and exit restrictions.

Financial Exposure & Long-Term Obligations

Franchisees often focus on the initial franchise fee while underestimating cumulative long-term exposure.

Financial obligations may include:

• Royalty percentages

• National or regional advertising fund contributions

• Technology platform and software fees

• Mandatory remodel requirements

• Required equipment upgrades

• Supplier pricing restrictions

• Minimum performance standards

• Development schedules (for multi-unit agreements)

We evaluate how these obligations impact long-term profitability and cash flow, not merely first-year projections. Where entity structuring is required, coordination with Business Formation & Governance may be advisable to limit personal liability exposure.

Negotiation Strategy & Deal Structuring

Franchisors rarely revise core system-wide provisions. However, certain economic or territorial terms may be negotiable. Negotiation opportunities may arise in:

• Territory clarifications

• Development schedules

• Opening deadlines

• Personal guaranty scope

• Transfer rights

• Build-out timelines

Strategic review identifies where leverage exists and where risk must simply be understood and accepted.

Exit Strategy & Dispute Considerations

Franchise agreements frequently contain strict termination triggers and limited exit flexibility. Common dispute scenarios include alleged default, encroachment within territory, financial underperformance, non-renewal disputes, and termination notices.

Most franchise agreements include mandatory arbitration clauses and specified venue requirements, which significantly impact enforcement strategy. Where disputes arise, matters may proceed under Commercial Litigation or arbitration provisions.

Exit strategy should be evaluated before signing. Transfer restrictions, liquidated damages provisions, and post-termination non-compete clauses can materially affect your ability to sell or exit the business.

Schedule a Franchise Consultation

If you are evaluating a franchise opportunity, provide the intended franchise brand, state of operation, number of developments, and timeline for execution. Our business attorneys will coordinate a structured review and advise on risk, enforceability, and strategic next steps before you sign.