Franchise Disclosure Documents | Item 6: Other Fees

Item 6: Other Fees

Like the UFOC Guidelines, Item 6 of the amended Rule requires the disclosure, in a prescribed tabular format, of recurring or occasional fees associated with operating a franchised outlet. These recurring or occasional fees include such charges as royalties, advertising fees, and transfer fees. Item 6 covers payments made directly to the franchisor or an affiliate, or collected by the franchisor or affiliate for the benefit of a third party. It does not include payments made directly by a franchisee to third parties, such as fees for telephone and Internet service.

Franchisors must state each type of fee, the amount of the fee, and the due date. Any formula used to compute the fee must be disclosed as well. If a fee may increase, franchisors must disclose the maximum amount of the increase or the formula used to determine the increase. For example, a percentage of gross sales is an acceptable formula, provided the franchisor defines what it means by “gross sales.”

Any remarks, definitions, caveats or other information that is necessary to clarify the fees disclosed can be made in the remarks column in the table, or, if the remarks are long, in footnotes to the table. The remarks column (or footnote) must address, if applicable: (1) whether the fee is payable only to the franchisor; (2) whether the fee is imposed and collected by the franchisor; (3) whether the fee is non-refundable or the circumstances when the fee is refundable; (4) whether the fee is uniformly imposed; and (5) the voting power of franchisor-owned outlets on any fee imposed by cooperatives. If the franchisor-owned outlets have controlling voting power, then the franchisor must disclose the maximum and minimum fee that may be imposed.

Unlike Item 5, which requires franchisors to disclose the range or formula used to calculate non-uniform fees paid in the last fiscal year, Item 6 does not require franchisors to disclose whether fees charged in prior periods were different from the current fees. For Item 6 purposes, franchisors need only disclose whether the current fee is uniformly imposed and collected by the franchisor.

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