Franchise Questions

If the franchisor (or one of its affiliates) sells an outlet that is operated by the franchisor (or one of its affiliates) and that outlet will be operated as a franchise after the sale, you follow the basic franchise sales steps by providing a current FDD to the buyer.

In addition to the other information provided as part of the basic sales steps, the franchisor may also provide the buyer with the actual operating results for the specific outlet being sold (for example, you could provide unaudited financial statements for the outlet) even if the franchisor does not make a financial performance representation in Item 19 of its FDD. The operating results for the outlet are not required to be attached to the franchi­sor’s FDD or to be disclosed in any particular format.

The operating results for that outlet may only be furnished to potential buyers of that specific outlet and cannot be provided to prospects interested in either (1) purchasing other operating outlets or (2) developing new outlets. Similarly, you cannot provide the buyer of that outlet with operating results (or other financial information) about any outlet other than the outlet the buyer is purchasing unless the requirements of Item 19 are met.

If the franchisor (or one of its affiliates) sells an outlet that is currently owned by the franchisor (or an affiliate) but was previously owned by a franchisee, you must provide the buyer with the following additional informa­tion, for the last 5 fiscal years:

• the name, city, state, and current business telephone number (if known) or last known home telephone number of each previous owner;
• the time period when each previous owner controlled the outlet;
• the reason for each previous ownership change (for example, termination, non-renewal, voluntary transfer, ceased operations, reacquired by the franchisor, etc.); and
• the time period(s) when the franchisor retained control of the outlet.

The additional information may be (a) included in Item 20 of the FDD, (b) attached to the FDD as an addendum when the FDD is furnished to the buyer, or (c) provided to the buyer in a supplement to a previously furnished FDD. The addendum or supplement must be given to the buyer at least 14 calendar days before the buyer signs any binding agreement with, or pays any amount to, the franchisor or any affiliate. If this applies, please check with the franchisor’s lawyer or compliance manager to determine how this information will be disclosed to the buyer.