Franchisors are required to prepare a Franchise Disclosure Document (FDD) by federal and state law. The purpose of the FDD is to provide necessary information to franchisees so they can make informed decisions about whether to purchase the franchise. The FDD contains a great deal of very detailed information so franchisors must be meticulous in its preparation. A thorough legal review by an attorney can help avoid potential problems as well as protect the rights of the franchisor. Lusthaus Law assists clients with drafting the FDD as well as providing regular reviews of existing FDDs to ensure ongoing compliance with relevant rules and business practices.
Review of existing FDDs
Preparation of the FDD is not a one-time event. FDDs must be updated annually. Although applicable laws and regulations vary, generally, the update must occur within 120 days after the franchisor’s fiscal year end. In addition, federal and some state laws, also require franchisors to amend their FDD if there has been a material event or material change. Because of the wide array of information that may be required by federal and state laws, it is recommended that franchisors get legal representation to assist whenever an FDD must be updated.
In addition, it is important for franchisors to periodically obtain a comprehensive review of their current FDD and related agreements. Often when an FDD has been used for many years, it becomes out-of-date or is not as effective at protecting the franchisor. A review should ensure that the FDD and associated documents are fully compliant with federal and state laws. Furthermore, these documents should reflect current business and industry practices, enforcement trends, or other changes that have occurred since the last time the FDD was reviewed. For example, non-poach provisions have been a target of some state attorneys general and such provisions in the FDD may need to be reviewed depending on where the franchisees operate.
As part of the FDD review, all agreements that the franchisee may be required to sign should be reassessed to ensure the franchisor is still protected from potential problems. These include review of the Franchise Agreement, Non-Disclosure and Non-Competition Agreement, Lease Rider, Personal Guaranty, Release and other relevant documents.
A legal review of your FDD is a good investment to help ensure you are complying with applicable laws and have the necessary terms to safeguard the interests of your franchise system.
If you have a franchise disclosure document that has not been reviewed recently, contact Lusthaus Law for a consultation.