As a prospective franchisee, you should expect to receive a franchise disclosure document (FDD) from a franchisor. Within the FDD, you will come across Item 12, which overviews the terms and conditions surrounding the franchise territory. Follow along to find out what should be disclosed in the FDD’s Item 12 and how one of the proficient franchise law attorneys at FortmanSpann, LLC can help you review these terms.
What is required to be disclosed in the FDD’s Item 12?
Essentially, the contents of the FDD’s Item 12 are made up of your franchised business’s territory rights, protections, and restrictions. More specific disclosures read as follows:
- Location type: this is where a franchisor must disclose whether the franchise opportunity is being sold in a specific location; or if you may select the location after the sale, upon their approval.
- Territory size: this is where a franchisor must disclose whether the franchise territory is specified or undefined. If specified, they must disclose the methods used to determine the size. And if undefined, they must disclose the minimum territory size granted (i.e., specific zip codes, radius, etc).
- Relocation conditions: this is where a franchisor must disclose whether they would approve the relocation of the franchised business or your establishment of additional locations.
- Franchisee rights and restrictions: this is where a franchisor must disclose the rights to territory, such as the right to territory options; along with the restrictions to territory, such as the inability to use other distribution channels.
- Exclusive territories: this is where a franchisor must disclose whether the territory’s exclusivity is contingent on specific requirements (i.e., sales, market penetration, etc.), whether it can be modified, and the consequences of your failure to comply.
- Non-exclusive territories: this is where a franchisor must disclose the statement, “You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control.”
- Similar offerings: this is where a franchisor must disclose whether they intend to operate any other business or franchise that offers similar goods or services.
Why is the information within this item important?
Buying into a franchise is likely one of the most significant financial decisions you will have to make in your life. This is why you must review the terms and conditions within the FDD carefully, including those in Item 12. It is important to know what competition you may be facing, what opportunities for growth you may or may not be offered in the future, and more. All of these factors combined may make or break your decision.
This is why we do not recommend signing an FDD without the legal advisement and presence of an attorney. So, to tackle your FDD today, call one of the talented franchise law attorneys from FortmanSpann, LLC.