Understanding Item 11 of the Franchise Disclosure Document

Before deciding to enter a franchise agreement with a brand, perhaps the most important thing a prospective franchisee can do is fully review all 23 Items of the Franchise Disclosure Document (FDD). For both experienced franchisees and first-time candidates, the FDD is a critical document to read in its entirety, as it provides the brand’s prospective buyers with a detailed analysis of the business ownership opportunity they are considering. After fully understanding Items 1–4 and 5–7 and these sections’ respective topics of the franchisors’ history and the cost breakdown, the potential franchisee must thoroughly understand Item 11: Franchisor Obligations.

In Item 11, the FDD breaks down the assistance and support the brand provides its franchisees — both at the beginning for a successful start and in the long term. This assistance and support range from information on training, advertising, software and advertising support, and opening assistance.

Specifically, Franchise Law states that under Item 11, franchisors must first disclose their obligations, as set forth in the franchise agreement, to furnish assistance to franchisees. These obligations to furnish assistance include pre-opening obligations, post-opening obligations, and a disclosure stating the typical length of time it takes to open a franchise. 

Some of the many things a franchisee can rely on the franchisor to handle during the start-up process are: 

• Locating a site and negotiating the purchase or lease of the site
• Conforming the premises to local ordinances and building codes and obtaining any required permits
• Constructing, remodeling or decorating the premises
• Hiring and training employees
• Providing for necessary equipment, signs, fixtures, opening inventory and supplies. 

If the franchisor is the party responsible for locating and negotiating the purchase or lease of the franchisee’s site, then the FTC Rule requires that the franchisor disclose whether the franchisor generally owns the premises and leases it to the franchisee; whether the franchisor selects the site or approves an area in which the franchisee selects a site, and if so; how the franchisor approves a franchisee-selected site; the factors that the franchisor considers in selecting or approving sites; the time limit for the franchisor to locate or approve or disapprove the site; and the consequences if the franchisor and franchisee cannot agree on a site.

Prospective franchisees should bear in mind that the Federal Trade Commission (FTC) only requires a franchisor to disclose obligations under the relevant franchise agreement to assist franchisees and help with advertising, computer systems, training and operating manuals. A prospective franchisee will need to ask questions about what type of support they will receive during opening and the long term, as brands are not specifically obligated to provide this information under the franchise agreement or Item 11. In fact, at the top of Item 11, the FTC Rule requires franchisors to provide the following statement in bold type: “Except as listed below, [the franchisor] is not required to provide you with any assistance.” 

While a franchisor’s Item 11 is incredibly helpful for understanding the type of support and resources available, it is important that a potential franchisee understand when that support is taking place and when — and if perhaps anything is being omitted per the FTC Rule. By fully understanding how brands write Item 11 and what is included in this Item, potential franchisees can better understand if the brand is a good fit for them.