Item 5 of the Franchise Disclosure Document (FDD) covers initial fees, or more specifically all fees and payments for products and services received from the franchisor before your business opens. And with that, Item 6 discloses all the other fees that you must pay to the franchisor. Continue reading to learn more about Item 6 of the FDD and how one of the experienced franchise law attorneys at FortmanSpann, LLC can guide you through this.
What is included in Item 6 of the franchise disclosure document?
According to the Code of Federal Regulations, Item 6: Other Fees of the FDD is supposed to cover “all other fees that the franchisee must pay to the franchisor or its affiliates, or that the franchisor or its affiliates impose or collect in whole or in part for a third party” in tabular format. Examples of fees that are commonly disclosed in Item 6 include, but are not limited to, the following:
- Fees associated with recurrent royalties.
- Fees associated with recurrent marketing.
- Fees associated with recurrent brand development.
- Fees associated with ongoing training services.
- Fees associated with ongoing technology services.
All in all, Item 6 is intended to help you, as a prospective franchisee, understand the capital requirements that come with opening a business before entering into an agreement. Though, you must understand that these fee disclosures may not portray the whole picture of opening your business. That is, under certain circumstances, your actual startup expenses may exceed your expected startup expenses.
What is the tabular format of this disclosure?
To reiterate, the Code of Federal Regulations requires that the fees in Item 6 be disclosed in a tabular format. First, the title “OTHER FEES” must be stated above the table in capital letters and bold type. Then, there should be four columns that contain specific information about each fee, and they should read as follows:
- Column 1: the type of fee (i.e., royalties, marketing, brand development, training services, technology, etc).
- Column 2: the fee amount.
- Column 3: the fee’s due date.
- Column 4: the remarks related to the fee that are necessary for clarification.
In regards to Column 4, remarks that should be made include the following:
- Remarks on whether fees are only payable to the franchisor.
- Remarks on whether fees are imposed and collected by the franchisor.
- Remarks on whether fees are refundable and the circumstances for obtaining a refund.
- Remarks on whether fees are imposed on and collected from franchisees uniformly.
- Remarks on the voting power of franchisor-owned outlets on any fees imposed by cooperatives.
With all that being said, if you are reviewing your first FDD, it is important that you properly navigate its fee disclosures. This is why we recommend that you consult with one of the skilled franchise law attorneys as soon as possible. Schedule your initial consultation with us today.