It is exciting for a franchisor to find a prospective franchisee who is interested and committed to the franchise system.  Compliance with the 14-day waiting  ensures that the franchisor-franchisee relationship starts on the right foot.  And protects them both from potential legal issues down the road.

How do franchisors comply with the 14-day hold? 

First, a franchisor must disclose the FDD to a franchisee prospect as soon as they make a reasonable request to review the FDD.

Then, the FTC requires at least 14 days to pass before prospective franchisees can execute a franchise agreement or make any payments to the franchisor or an affiliate in connection with the proposed franchised sale.

This 14-day requirement does not include: (1) the day the prospective franchisee receives the FDD and (2) the day the agreement is signed or payments are made in connection with the sale of the franchise.  These dates are “bookends” to the 14-day rule.  Sometimes the disclosure period is expressed as a 14+2 day disclosure period.  Logically, the rule is a 15-day waiting period.  The franchisee can execute and make payments on the 16^th day after the prospect receives the FDD.

For example, if a franchisor disclosed a prospect on January 1, the prospective franchisee cannot sign the franchise agreement or make payments until January 16.  The table below illustrates this concept: 

Waiting periods longer than 14 days would also comply with the rule. 

Additionally, the FTC Rule includes a 7-day waiting period.  The 7-day waiting period may run concurrently with, or in addition to, the 14-day hold. 

You can use our franchise agreement calculator to calculate a closing date.  

Failure to comply with the disclosure timing requirements could allow a franchisee to rescind the contract.  A franchisor may be required to refund the franchisee.  The sudden change of heart could be costly to a franchisor that has invested significant time and money.

Do all states follow the same FDD disclosure waiting period?

Many states follow the same disclosure waiting period.  However, franchisors should also be aware that certain states have different disclosure timing requirements:

• Iowa:  A franchisor with a net worth of $1M or less must give a prospect the FDD at the earlier of:  1) the first personal meeting or 2) 14 calendar days before the prospect signs a binding agreement or makes a payment to the franchisor or an affiliate. 
  
  
• New York:  A franchisor must give a prospect the FDD at the earliest of: 1) the first personal meeting or 2) ten business days before the execution of the franchise or other agreement or the payment of any consideration related to the franchise relationship.
  
  
• Michigan: A franchisor must give a prospect the FDD at least ten business days before the execution of any binding franchise or other agreement or the payment of any consideration.