FDD Item 22 Explained: What to Mark Up in the Sample Contracts Before Signing

Why Item 22 Is the Section That Actually Binds You

Items 1 through 21 of the Franchise Disclosure Document are summaries. They’re useful for understanding the franchise opportunity at a high level. But they are summaries — and where the FDD summary and the actual contract conflict, the contract controls.

Item 22 is where the contracts live. The franchise agreement, the area development agreement, the software license, the personal guaranty, the lease (if franchisor-controlled), and any other agreements the franchisee has to sign — they’re all in Item 22. This is the legal source code of the franchise. Reading it with a franchise attorney is the highest-ROI step in the entire buying process.

What Item 22 Includes

Item 22 must include copies of every agreement the franchisee will be required to sign. Common contents:

• The franchise agreement — the core contract
• Area development agreement (if multi-unit) — commitments to open additional locations
• Software license / technology agreement — terms of POS, app, and franchisor-provided software access
• Supplier agreements — terms with required or designated suppliers
• Real estate lease (if the franchisor controls the property and subleases to the franchisee)
• Personal guaranty — your personal commitment to back the franchise’s obligations
• Confidentiality agreement — typically signed during the diligence phase
• State-specific addenda — modifications required by state franchise laws (Illinois, Washington, and other registration states)

The number of documents varies. A simple service-business franchise might have 3–4 agreements; a complex multi-unit restaurant franchise might have 12+.

How a Franchise Attorney Reads Item 22

A qualified franchise attorney brings to Item 22 review:

• A specific knowledge of franchise-industry conventions and standard terms
• Familiarity with which terms are negotiable and which aren’t (varies by franchisor)
• Awareness of state franchise laws that may modify or override contract language
• Pattern recognition from reviewing other franchise agreements in the same category

Hourly rates run $300–$700 for franchise specialists; a thorough review of a typical franchise agreement runs 4–10 hours, depending on complexity. Total cost: $1,500–$5,000 for a single-unit agreement, more for multi-unit.

That cost is the cheapest insurance available against a 10-year contractual surprise. The buyers who skip legal review are the ones who get blindsided by clauses they never noticed during their own read.

The Eight Clauses Worth Marking Up

Even with attorney review, knowing the categories worth scrutinizing helps you read your own agreement productively. The eight that matter most:

1. Termination Triggers and Cure Periods

What conduct allows the franchisor to terminate? How much notice do you get? What’s the cure period? Are any defaults uncurable?

Mark up:

• Termination triggers that are vague (“conduct adverse to the franchise system”)
• Cure periods shorter than 30 days for any except payment defaults
• Uncurable defaults beyond the standard (criminal convictions, fraud)

2. Post-Termination Non-Compete

Duration, geographic scope, industry definition. See Item 17 for the standard ranges.

Mark up:

• Geographic radius exceeding 25 miles
• Duration exceeding 2 years
• Industry definition broader than the actual franchise category

3. Renewal Conditions

Cost (renewal fee + remodel + training), conditions, whether the then-current agreement applies.

Mark up:

• Renewal subject to franchisor’s “sole discretion”
• Required remodel costs without a cost cap or estimated range
• Renewal triggers a new agreement that may include materially different terms

4. Transfer Rights and Right of First Refusal

How the franchise can be sold, what fees apply, ROFR mechanics.

Mark up:

• Transfer fees structured as a percentage of sale price (instead of flat fee)
• ROFR exercise periods longer than 30 days (delays your sale)
• Approval-of-buyer criteria that are unusually restrictive

5. Personal Guaranty

Scope, duration, parties signing.

Mark up:

• Spousal guaranty if your spouse isn’t an owner (often unnecessary)
• Open-ended duration with no termination on franchise expiration
• Scope that extends to obligations beyond the franchise itself

6. Dispute Resolution

Arbitration vs. court, location, choice of law.

Mark up:

• Mandatory arbitration in a state distant from your operations
• Class action waivers
• Choice of law that disadvantages franchisees (some franchise-friendly laws are pre-empted by contract choice-of-law clauses)

7. Territory Definition

How exclusive is your territory? Under what conditions can the franchisor open additional units in or near your area?

Mark up:

• “Designated territory” without exclusivity (franchisor can open additional units)
• Encroachment definitions that don’t include alternative-channel sales (online, food delivery, retail)
• Territory boundaries defined by demographic data that may shift over time

8. Modifications to the System

Most franchise agreements give the franchisor broad rights to modify operating standards, system-wide programs, and supply chain.

Mark up:

• Unilateral right to add new fees during the term
• Required participation in any new program at the franchisor’s option
• “System changes” definitions that allow the franchisor to materially alter the concept

What’s Actually Negotiable

Not every issue is worth fighting. Some are; some aren’t. A practical guide:

Often Negotiable

• Territory boundaries: Especially for single-unit deals in undeveloped markets
• Opening date and pre-opening timeline: Franchisors usually have flexibility
• Personal guaranty scope (excluding spousal guaranty): Sometimes can be limited to the franchise period
• Administrative corrections: Names, dates, typos — routine

Sometimes Negotiable

• Renewal fee specifics: Especially for high-quality, multi-unit franchisees
• Transfer fee structure: A flat fee instead of percentage
• Specific cure-period extensions: Sometimes 60 → 90 days
• State-specific addendum modifications: To better align with state franchise laws

Rarely Negotiable

• Royalty rate: Almost universally non-negotiable
• Ad fund contribution: Treated as system-wide, equal among franchisees
• System-modification rights: Franchisors maintain unilateral control
• Choice of forum and law: Standard for the franchisor’s home state
• Most termination triggers: Standard form

The pragmatic move: focus negotiation energy on the items where movement is realistic, and accept the items where it isn’t. A franchise attorney will know the difference.

How to Run an Item 22 Review

A workable process:

1. Read the FDD summary (Items 1–21) first — get the high-level picture
2. Read Item 22 yourself — at least the franchise agreement; circle anything that surprises you
3. Send Item 22 to a franchise attorney with a list of your circled items and any specific concerns
4. Discovery day — bring your attorney’s notes and ask the franchisor about each material concern
5. Final attorney review — after discovery day, your attorney finalizes any negotiation requests
6. Send a redline to the franchisor with your requested modifications (your attorney will draft this)
7. Negotiation — typically 1–3 rounds; some franchisors agree to nothing, others negotiate routinely
8. Sign the final agreement with all agreed modifications

The whole process takes 4–8 weeks if both sides are responsive. Don’t let a franchisor pressure you into signing on a faster timeline than your attorney recommends.

Common Item 22 Red Flags

After reading enough franchise agreements, a few patterns warrant scrutiny:

• An aggressively worded termination clause with multiple uncurable defaults
• A perpetual personal guaranty that survives franchise expiration
• Choice of forum in a remote state with no nexus to the franchisor or franchisee
• Required execution of additional supplemental agreements that aren’t included in Item 22 (the franchisor introduces them later)
• Explicit waivers of state franchise laws (often unenforceable but signal intent)
• Modification rights that allow the franchisor to alter material terms unilaterally during the term

Cross-References to Other FDD Items

• Item 17: The standardized table summarizing the agreement’s renewal/termination/transfer provisions
• Item 11: Franchisor obligations defined in detail in the agreement
• Item 6: Recurring fees — verify the agreement’s payment terms match
• All state-specific addenda — required by state franchise laws

Want a 12-section deep-dive on any franchise’s FDD? A $499 FDD Analysis Report from VetMyFranchise reviews the franchise agreement clause by clause and flags every provision worth marking up before signing — saving you discovery-call time and giving your franchise attorney a head start on the redline.

Bottom Line

Item 22 is the legal source code of the franchise. Items 1 through 21 are the summary; the franchise agreement is what actually binds you for the next decade. Get a franchise attorney to review it before signing — the cost ($1,500–$5,000) is small relative to the franchise investment ($150K–$1M+), and skipping the review is the most expensive avoidable mistake in franchise buying. Read it carefully yourself, focus your attention on the eight clauses above, and treat the redline back to the franchisor as one of the most consequential negotiations of your business career.