I continue with my sixth installment on Observations from the IFA Convention on the Ins and Outs of Financial Performance Representations (“FPRs”). Again, my thanks to Max Schott of Gray Plant Mooty for co-authoring this summary with me. This concerns whether and how a franchisor can make a “supplemental FPR”.
Supplemental FPRs: What are they and when would a franchisor ever want to use one? If a franchisor includes an FPR in Item 19 of its Franchise Disclosure Document (“FDD”), it may also provide to a prospective franchisee a supplemental FPR, outside of the FDD, about “a particular location or variation” relating to the franchise being offered to the prospective franchisee. For example, if a franchisor’s FPR in Item 19 includes average gross revenues and gross profits of all franchised units across the country, the franchisor may want to provide a supplemental FPR containing average gross revenues and gross profits of only those franchised units in Las Vegas, if the prospective franchisee desires to purchase a franchise to be located in Las Vegas, or only those franchised units in a strip malls, if the prospective franchisee desires to purchase a franchise to be located in a strip mall. A supplemental FPR must be in writing, explain how it is a departure from the FPR in the FDD and be prepared in accordance with the other requirements of Item 19. We advise against a franchisor introducing new categories of information in its supplemental FPR. In addition, while the FTC Franchise Rule does not appear to require a franchisor to wait an additional 14 calendar day period after providing a supplemental FPR to a prospect, a best practice would be to do so and to maintain proof of this disclosure, unless time is truly of the essence.
The next and final installment of this blog series will have a couple tips on advertising and our final thoughts (drum roll please).