What are Items 8 and 12 of the FDD?

The Franchise Disclosure Document (FDD), a document consisting of 23 Items, provides potential franchisees with a detailed analysis of the franchise opportunity they are considering. Each of these sections is significant and should be read in detail, but when it comes to understanding the franchisor’s restrictions on sources of products or services and any specifications on territory, these topics can be reviewed thoroughly in Items 8 and 12, respectively. And as both of these Items directly impact the profitability and long-term success of a franchise location, it’s crucial that a prospective franchisee consult with a franchise lawyer. A lawyer can help navigate the agreement and FDD to make sure all of the terms are laid out and properly negotiated. 

Item 8, Restrictions on Sources of Products or Services, is important to maintain brand uniformity, and this is why this section of the FDD outlines where franchisees are able to purchase goods and services necessary to franchise units. Franchise Law notes that if the franchisor requires that franchisees purchase or lease any goods, Item 8 of the brand’s FDD must disclose any purchase obligations. 

Someone looking at Item 8 of an FDD should realize that this section outlines the service and sourcing standards that are currently in place across a brand’s system and that there is little to no wiggle room. Things to make note of include franchisors with loose guidelines (indicating lack of consistency across the brand) and franchisors that make a lot in royalties based on the products and services that franchisees buy. 

While Item 8 does not have leeway for change, Item 12 is a section that has a bit more flexibility. With many franchise systems operating within territories, it is important for a potential franchisee to understand Item 12 and where they are able to conduct business and solicit customers. When reviewing this Item, prospective franchisees should take note if they have an  assigned protected territory or not and if there is room for expansion in nearby territories. As mentioned in Franchise Law, a franchisee can likely modify their territory when they renew their contract.

When reading through Item 12, a prospective franchisee should pay close attention to if the territory is large enough to have a viable business and also have a thorough understanding of what the franchisor defines as protected territory. A protected territory does not always mean that the franchisee won’t have competition; in fact, the franchisor can still conduct business — just not brick and mortar — through multiple channels, such as online, mobile locations, airports and shopping malls.  

Both Items 8 and 12 are incredibly important to gauge the success of a franchise location and how the brand operates as a whole. By reading the fine print and understanding where a territory will be, if it can be negotiated and any costs and restrictions on products and services, a potential franchisee can best decide if a particular franchise business is right for them.