FDD Item 5
Initial Fees
FDD Item 5 discloses all initial fees the franchisee will pay to the franchisor or its affiliates before the franchise opens. This includes the initial franchise fee plus any other pre-opening fees.
Why It Matters
Item 5 establishes the front-loaded cost of joining the franchise system. It also discloses any variations on the published fee — veteran discounts, multi-unit incentives, conversion deals — that are room for negotiation.
What Item 5 Must Disclose
- Initial franchise fee amount and refundability terms
- Other pre-opening fees paid to the franchisor or affiliates
- Any variations on the standard fee (veteran, multi-unit, conversion programs)
- Whether fees are uniform or vary by territory, market, or candidate
What to Look For
- Multiple fee tiers disclosed — indicates room for negotiation
- Non-refundable fees with no clear deposit-escrow language
- Fees paid to affiliates separate from the franchisor — adds parties and complexity
Go Deeper
FDD Item 5 Decoded: Initial Fees, Tiers, and Refundability
Item 5 looks like one number on a page. It is actually a tiered, conditional, often non-refundable contract clause that decides how much room you have to push back before signing.