Franchise Law

Understanding the FDD and Franchise Agreement Before You Invest

August 5, 2025

By Louis Tambaro

Understanding the FDD and Franchise Agreement Before You Invest

Franchise Agreements Are Binding and Often One-Sided                                                          

Franchise Agreements are typically drafted by the franchisor and presented on a “take it or leave it” basis. These contracts often impose strict controls over how you operate your business — from approved vendors and marketing strategies to pricing, hours of operation, and technology platforms. They also frequently include provisions that:

  • Limit your ability to exit the business without penalties 
  • Impose personal guarantees and long-term non-competes
  • Allow the franchisor to raise fees or change system rules unilaterally
  • Require extensive marketing spend and recurring royalty payments, regardless of profitability

Once signed, these agreements are legally binding, and courts generally enforce them as written. That’s why it’s critical to understand every term, especially the financial and operational obligations that can continue even if your business underperforms.

The FDD Reveals More Than You Think—If You Know Where to Look

Federal law requires all franchisors to provide an FDD at least 14 days before you commit to purchasing a franchise. This document includes 23 mandatory items covering everything from fees and restrictions to litigation history and franchisee turnover. Key areas to focus on include:

  • Item Seven (Estimated Initial Investment): Are the start-up costs realistic? Do they include real estate, equipment, training, and working capital
  • Item 19 (Financial Performance Representations): Does the franchisor provide actual revenue or profit data? If not, you’ll need to speak directly with current and former franchisees to assess performance
  • Item 20 (System Growth and Turnover): How many outlets have closed, transferred, or terminated in the past three years? A high rate of turnover may signal problems in the system

Location, Location, Location: Real Estate Considerations Matter

For brick-and-mortar franchises, securing the appropriate location is mission-critical. But many prospective franchisees underestimate just how complex and time-consuming the real estate process can be. Questions to ask include:

  • Will the franchisor assist with site selection and lease negotiations
  • Does your market have sufficient demand for the service you're offering
  • Have you accounted for construction costs, permitting delays, or the need for tenant improvements

Before signing a lease, make sure your site is approved by the franchisor, zoned appropriately, and competitively situated within your target market. Poor location decisions can be fatal, even with a strong brand behind you.

Due Diligence Is Not Optional — It’s Essential

Even if a franchise system seems successful from the outside, the only way to know whether it’s viable for you is through diligent research. This includes:

  • Contacting five to seven current and former franchisees in similar markets to ask about actual revenue, marketing effectiveness, franchisor support, and break-even timelines
  • Building a financial model that includes royalties, fees, payroll, rent, and realistic revenue assumptions
  • Consulting experienced franchise counsel to identify red flags or possible negotiation points (such as non-compete terms, marketing obligations, or transfer fees)

Understand the Fine Print: Non-Competes and Post-Termination Restrictions

One of the most overlooked — but potentially harmful — aspects of franchise agreements is the restrictive covenants that survive after your business ends. Most franchise agreements include:

  • In-term and post-term non-compete clauses that prevent you from operating a similar business for up to two years within a certain geographic radius
  • Non-solicitation provisions that restrict contact with former clients, employees, or vendors
  • Injunctive relief and fee-shifting clauses that give the franchisor significant enforcement rights if they believe you’ve violated these obligations

These provisions can limit your ability to earn a living in your field if things don’t work out. You must understand exactly what you are agreeing to before committing to the franchise.

Franchise Investment Is a Long-Term Commitment

Most franchise agreements last between five and 10 years, and renewal isn’t guaranteed. Even if renewal is offered, it often requires signing a new agreement that may include higher fees or stricter obligations. If your situation changes, selling or transferring your franchise may trigger high administrative fees or require franchisor approval. Some agreements even prohibit termination unless certain financial benchmarks are met.

No Guarantees of Success

Finally, it’s important to remember — buying a franchise is not a guarantee of success. Many franchisors explicitly disclaim responsibility for your profitability, and even those that provide financial data often include broad disclaimers. You bear the operational risk, and in many cases, personal financial risk.

Bottom Line: Don’t Buy Blind

The decision to invest in a franchise should be driven by facts — not hope, hype, or brand appeal. Review the FDD and Franchise Agreement in full. Speak to other franchisees. Build your own financial model. And don’t move forward until you’ve consulted an attorney who specializes in franchise law. The costs of skipping this step — both financial and emotional — can be far greater than you think.

Categories: Franchise Law

Related People

Related Services

  • Overview
  • People
  • Services
  • Franchising Your Business
  • Purchasing a Franchise
  • Litigation & Dispute Resolution
  • Blog
  • News

Firm Highlights

  • Events
    MACFO's Inside Successful CEO & CFO Partnerships
    Please join us on September 18 for an event that’s sure to be a home run! ***We will lead off by interviewing our Spotlight Speaker Series guest, Baltimore Orioles CFO, Darline Llamas Llopis.*** After, we will ask ourselves, what separates great companies from good ones? We believe that more often than not, it is the strength of the partnership between the CEO and CFO that matters, so we are bringing you three CEO/CFO leadership teams to learn from. The Associated: Jewish Federation of Baltimore – Andrew Cushnir and Sam Klein Canusa Paper & Packaging – Mike Walter and Vince Salamone EMR – Caroline Kauffman-Kirschnick and Lisa Loeffler Join us for an exclusive executive briefing – three tandem presentations followed by a panel discussion - featuring CEOs and CFOs from different but leading organizations as they share candid insights into building trust, navigating difficult decisions, driving strategic growth, and leading through today's business challenges. You'll hear firsthand how these executive teams navigate conflict, align on priorities, and build high-performing organizations. Whether you're a CFO, controller, finance executive, or an aspiring business leader, you'll leave with practical ideas and fresh perspectives you can apply immediately. Meet Our Speakers: Darline Llamas Llopis • Orioles  Chief Financial Officer Darline Llamas Llopis is in her second season with the Orioles as Chief Financial Officer (CFO). Prior to joining the Orioles, Llamas Llopis spent four seasons with the Miami Dolphins, Hard Rock Stadium, and the F1 Miami Grand Prix as Vice President of Finance and Retail. In this capacity, she managed the finance, accounting, payroll, account payables, procurement and merchandise operations for the team and race. She also previously served for four years as the Director of Finance and Controller at the Los Angeles Rams. Llamas Llopis started her career in public accounting with Ernst & Young and PricewaterhouseCoopers as a member of the Commercial Real Estate practice.  Llamas Llopis completed her MBA at UCLA Anderson School of Management and received her Master of Accountancy from the University of Southern California (USC) where she also graduated cum laude with an undergraduate degree in business. She is a member of the American Institute of Certified Public Accountants (CPA) and is an active CPA. She resides in Baltimore with her husband, Devin, and their son, Santiago. Andrew Cushnir • The Associated: Jewish Federation of Baltimore   President & Chief Executive Officer Andrew Cushnir is the President and Chief Executive Officer of The Associated, having started in the role in May 2024. He is the eighth person to serve in this role since The Associated’s founding over 100 years ago. Andrew brings a wealth of experience and a profound dedication to strengthening and enriching the Jewish community. His journey within the Jewish Federation system began as a passionate lay leader and volunteer before he transitioned into serving as a professional. He worked for the Jewish Federation of Los Angeles for twenty years, including in the roles of Chief Planning and Program Officer and Chief Development Officer. During this time, Andrew played a crucial role in reshaping the allocation process and fostering a culture of collaboration and partnership and he also led all annual, project, and emergency fundraising, as well as planned giving efforts. As a member of the Federation’s executive team, he also addressed complex community and organizational issues. Andrew and his wife Sharon Spira-Cushnir, a seasoned nonprofit human services executive, are the proud parents of two children in their early 20s. Sam Klein • The Associated: Jewish Federation of Baltimore  Chief Financial Officer Sam Klein is a seasoned nonprofit finance executive with nearly two decades of experience leading financial strategy, operations, budgeting, and organizational transformation for mission-driven institutions. As Chief Financial Officer of The Associated: Jewish Federation of Baltimore, he oversees the organization's financial operations, investment stewardship, budgeting processes, risk management, and long-term financial planning, helping advance the Federation's mission of strengthening and supporting Jewish life in Baltimore, Israel, and around the world. Throughout his career, Sam has been recognized for his ability to align financial stewardship with organizational mission, drive process improvements, implement technology solutions, and build high-performing teams. His expertise includes nonprofit finance, strategic planning, budgeting and forecasting, investment oversight, financial reporting, compliance, operational excellence, and organizational growth. Sam earned a Master of Business Administration in Finance from the Johns Hopkins Carey Business School and a Bachelor of Science in Finance and Marketing from Syracuse University. Mike Walter • Canusa's Paper & Packaging Chief Executive Officer As Chief Executive Officer of Canusa Paper & Packaging (CPP), Mike Walter leads one of the world's leading independent international brokerages of containerboard and packaging papers. Mike recently celebrated his 20th anniversary with Canusa and has overseen a doubling of the business in the past five years. Mike’s first role at Canusa was an intern before moving into a risk management role. Progressive promotions over the years led Mike to serve as Canusa's Chief Operating Officer and General Counsel, as well as General Counsel for its affiliate, Canusa Hershman before becoming the CPP CEO on January 1st, 2025. Mike graduated with a B.S. in Commerce & Engineering from Drexel University before earning his J.D. at the University of Baltimore’s School of Law. Vince Salamone • Canusa's Paper & Packaging Chief Financial Officer Vince Salamone serves as Chief Financial Officer of Canusa Paper & Packaging, overseeing the company's global financial strategy and overall operations, risk management, and other shared services. Since joining Canusa in 2018, Vince has advanced from Corporate Controller to CFO. Prior to Canusa, Vince held senior accounting and financial reporting roles at modular space leader Algeco Scotsman and supply chain real estate operator Realterm, bringing extensive expertise in finance and corporate accounting. He began his career with Deloitte, providing assurance services to clients in aerospace and defense, software, and manufacturing throughout the Mid-Atlantic. Vince attended the University of Maryland and Towson University, earning his B.S. in Accounting in 2012 and his CPA license in 2014. Caroline Kauffman-Kirschnick • The Electric Motor Repair Company President Caroline Kauffman is President of EMR, where she leads company strategy, operations, business development, and culture. Having grown up in the family business and worked in nearly every area of the organization—from accounts receivable and human resources to operations and branch leadership—she brings a unique, firsthand understanding of what drives business success. Since becoming President in 2018, Caroline has championed employee engagement, teamwork, and innovative problem-solving while helping guide EMR's continued growth. She holds a Bachelor of Science in Public Relations from York College of Pennsylvania and is active in several industry and family business organizations. Lisa Loeffler • The Electric Motor Repair Company Chief Financial Officer Lisa Loeffler is a strategic Chief Financial Officer with more than 25 years of executive leadership experience driving growth, financial transformation, and operational excellence across private equity-backed, privately held, and international organizations. She has led finance functions for companies with revenues from $40 million to $600 million, specializing in M&A, FP&A, ERP implementations, financial strategy, and organizational transformation. Known for building high-performing teams and partnering with CEOs and boards, Lisa delivers scalable solutions that strengthen financial performance, improve operational efficiency, and position organizations for sustainable growth and successful transactions. Thank You to Our Sponsors
  • Events
    The Women's Wealth Forum
    The Women's Wealth Forum: Personal Wealth Planning and Business Strategies for Women Business Owners and Executives This exclusive, invitation only forum brings together women business owners and executives for a conversation on building, protecting and leveraging wealth – both inside the business and beyond. Through advisor insights and peer networking, attendees will explore integrated strategies for building enterprise value and personal wealth. This program is designed for forward-thinking women leaders to gain practical advice and strategies that help align business success with personal life and legacy goals. Meet Our Speakers: Kathleen Cairns • Fallston Group Communications Strategist Kathleen Cairns is an Emmy award winning television journalist and nationally recognized communication expert who helps leaders find their voice and communicate with confidence. After more than 30 years covering high-profile stories and interviewing newsmakers under deadline, she now equips executives and organizations with the tools to deliver clear, compelling messages that inspire action. Her executive coaching focuses on voice training, body language analysis, and message development. Kathleen transforms complex ideas into messages audiences remember. Her engaging, interactive presentations leave participants with immediately applicable skills they can use in every conversation, presentation, interview, and media opportunity. Glenn Solomon • Offit Kurman Principal For 40 years, Glenn has devoted his law practice to represent substantial high growth businesses and their owners from inception to exit, along with start-up businesses which plan to attain high growth. Glenn’s focus is on strategic business planning and mergers and acquisitions across a broad spectrum of industries and sizes and types of companies. Through his years of work on hundreds of transactions, Glenn has become a trusted legal and business advisor to his clients, and understands the M & A process, challenges and pitfalls to avoid. Jill B. Steinberg, CEPA®, CDFA®, MBA • Beacon Pointe Advisors Partner, Managing Director Jill Steinberg leads Beacon Pointe’s Philadelphia office, drawing on more than three decades of experience advising clients on wealth planning and investment strategy. She is passionate about working closely with women to provide thoughtful financial guidance, particularly during periods of transition such as retirement, business expansion or sale, divorce or bereavement. Jill is actively involved in Beacon Pointe’s Women’s Advisory Institute, providing education to women clients and mentoring women colleagues. Prior to joining Beacon Pointe, Jill founded and led Walden Capital Advisors, guiding high-net-worth women and men to help them achieve their financial and life goals. She began her career in investment banking working with entrepreneurs to raise growth capital and advising companies on mergers and acquisitions. Jill serves on boards and investment committees for several local Philadelphia non-profits (including Live Like Blaine, a nonprofit founded in her daughter’s memory). Jill graduated cum laude from Princeton University with a degree in Economics, earned an MBA with distinction in Finance and Real Estate from the Wharton School of the University of Pennsylvania. Heather Brake • Chesapeake Corporate Advisors Director Heather began her career with Chesapeake Corporate Advisors in 2010. As a director in the firm's Strategy and Valuation practice, Heather is focused on financial analysis and shareholder value creation. Heather has 10 plus years of experience providing business strategy services to privately held and investor-owned businesses including strategy development, growth initiatives, shareholder value and profitability improvement. She performs business valuations for both strategic and fair market value engagements and is involved in the preparation of financial models and presentations related to strategic planning, capital/ debt raise engagements, bank financing, and succession planning. Heather is an active member of Baltimore Estate Planning Council. Heather earned a BSBA in Management from Bucknell University and an MBA in Finance from Loyola University Maryland’s Sellinger School of Business and Management. Anna Gavin • Consultant and Former CEO Fireline Corporation Anna Gavin is an executive leader, board member, and former President, CEO and owner of Fireline Corporation, a Baltimore-based fire protection services provider. As a third-generation leader, she assumed full executive and P&L accountability in 2009, scaling revenues from $20M to $60M while leading over 250 employees. Grounded in a high-performing, culture-first approach, Anna guided Fireline through continuous strategic growth, next-generation leadership development, and a successful ownership transition. Today, Anna serves as a strategic advisor, consultant, and mentor, focusing on organizational development, executive coaching, and nonprofit governance. She sits on the boards of Baltimore Hunger Project and the Fulton Bank Advisory Board, serves as Chair of the Fund for Garrison Forest School's Advancement Committee, and active committee member for Executive Alliance. Honored as an inductee into the 2026 Maryland Business Hall of Fame by the Maryland Chamber of Commerce, her legacy is defined by culture-driven growth and service to the regional business community.