Franchise Disclosure Document: Item 17

When researching franchise concepts, arguably the most important step in this process is reading a brand’s Franchise Disclosure Document (FDD). The FDD is a document that outlines the history of the business, fees, rules and restrictions, all the franchisees in a system, turnover rates, renewal terms and other aspects of a particular franchise. The FDD encompasses 23 Items, all of which contain essential information. 

Item 17, for example, requires franchisors to disclose the location and summarize the substance of certain contractual terms in the franchise agreement that govern the franchise relationship, including those relating to renewal, termination, transfer and dispute resolution. Depending on the nature of the franchise system, Item 17 may be one of the shorter and less complex Items in the FDD.

Item 17 is important for candidates to understand because it explains whether or not their agreement can be renewed or terminated, and what their rights and restrictions are if they have a disagreement with their franchisor. In this way, it acts as a summary of the terms of a brand’s franchise agreement. The section will provide franchisees with all the information that they need in regard to non-compete obligations and renewal rights, ensuring they can map out the entire lifecycle of their business and make a plan that is right for them. Many franchisees invest in a business with the long-term goal of selling it in the future, and Item 17 will help them determine how well the concept lends itself to that plan.

But even though Item 17 of the FDD is designed to give candidates a strong overview of what their rights are when it comes to renewing, selling or ending their franchise agreement, it’s not the be-all and end-all of information on the subject. 

In order to get a full picture of whether or not a brand’s Item 17 information is right for a candidate’s goals, they should also speak with franchisees who have either renewed, transferred or ended their agreement with the brand. By gaining multiple perspectives on how the brand handles and settles disputes, candidates are better able to decide if they’re a good match or not.

Although Item 17 is not as dense as other sections of the FDD, it is still full of legal jargon and can be difficult to decipher. Franchisee candidates should enlist the help of a franchise attorney to ensure they understand the obligations that will be required of them and the rights they will have as part of the franchise system. The last thing prospects want is to sign on the dotted line and then find themselves in a situation where they can not achieve their personal goals because of stipulations outlined in the franchise agreement.