1. What Must Be Disclosed before Buying a Franchise?
Federal and New York laws impose separate disclosure requirements before a prospective franchisee signs a binding agreement or pays for a franchise. Compliance with one does not replace the other.
Federal Franchise Disclosure Requirements
Under 16 CFR §436.2, a franchisor generally must provide a current FDD at least 14 calendar days before a prospective franchisee signs a binding agreement or pays the franchisor or its affiliate in connection with the sale.
The FDD contains 23 disclosure items covering investment costs, litigation history, territory rights, and other material information.
Item 19 governs financial performance representations. Franchisors need not provide earnings projections, but covered financial performance claims must meet disclosure and substantiation requirements.
A separate seven-calendar-day review period applies when a franchisor unilaterally makes material changes to an agreement attached to the FDD or introduces previously undisclosed material terms. Franchisee-initiated negotiations do not automatically trigger that period.
The Franchise Disclosure Document should be compared with the proposed agreement to identify material differences.
New York Franchise Registration and Disclosure Rules
New York General Business Law (GBL) §683 generally requires registration of covered franchise offerings with the New York Attorney General before offers or sales in the state.
Exemptions under §684 vary by transaction. Registration exemptions do not necessarily eliminate applicable disclosure or antifraud obligations.
For franchises subject to registration, §683(8) requires delivery of the offering prospectus and proposed agreements at the earliest of:
- The first qualifying face-to-face meeting
- At least 10 business days before signing a binding agreement
- At least 10 days before receiving consideration for the proposed sale
These requirements operate separately from the FTC's 14-calendar-day rule.
Registration is administered by the state, not Westchester County, and does not constitute government endorsement of the investment.
2. Which Franchise Agreement Terms Deserve Review?
Recurring payments, territorial restrictions, renewal conditions, and exit provisions determine much of a franchisee's long-term contractual exposure.
Fees, Royalties, and Territory Restrictions
Franchisees may owe initial fees, royalties, advertising contributions, technology charges, and payments for required products or services.
Royalties often depend on gross sales rather than profits, so payments may remain due even when the location operates at a loss.
Compare the territory map with clauses addressing competing locations, online sales, delivery services, relocation, and performance requirements. A designated territory does not necessarily prohibit every competing activity.
These provisions deserve close attention during franchise agreement review.
Renewal, Termination, and Transfer Provisions
Renewal may require payment of outstanding fees, renovations, compliance with updated standards, or execution of a new agreement.
Termination clauses identify defaults and applicable notice or cure periods. Not every contractual violation permits immediate termination.
Transfers may require franchisor approval, payment of fees, or satisfaction of buyer qualifications.
Post-termination noncompetition restrictions and surviving payment obligations also require review. Their enforceability depends on applicable law and contractual terms.
3. What Legal Risks Should Be Checked before Signing?
Financial projections, personal guarantees, and location requirements can create liabilities beyond the initial franchise investment.
Financial Representations and Personal Guarantees
Historical sales do not establish what a new location will earn. Operating costs, local demand, and competition can produce substantially different results.
Prospective franchisees should compare reported Item 19 revenue with its underlying assumptions, operating expenses, and available supporting data.
A personal guarantee creates separate exposure. An owner signing individually may become liable for specified obligations even when the franchise operates through an LLC or corporation.
The guarantee's scope, duration, and release conditions determine the extent of that liability.
Business Location, Zoning, and Lease Restrictions
Franchisor approval does not replace governmental authorization to operate at a proposed location.
In Westchester County, zoning requirements depend on the city, town, or village where the property is located. Building permits, fire-safety approvals, health permits, and signage restrictions may also apply.
A proposed lease should be compared with franchise requirements for renovations, opening deadlines, and continued operations.
Lease contingencies addressing required approvals can limit contractual exposure if the location cannot legally accommodate the proposed business.
4. What Remedies and Dispute Procedures Apply to Franchise Claims?
Disclosure violations, alleged misrepresentations, and contractual defaults can produce different claims. Available remedies, filing deadlines, and dispute forums must be assessed separately.
Damages and Rescission under New York Law
Under GBL §691, qualifying violations of §§683, 684, and 687 may support damages claims. Willful and material violations may also justify rescission, with six-percent annual interest and reasonable attorney fees and court costs available under statutory conditions.
Claims generally must be filed within three years of the violating act or transaction, not from discovery.
Under §691(2), a qualifying pre-suit refund offer may bar a claim if the franchisee still owns the franchise and fails to accept it within 30 days. The offer must refund consideration plus six-percent annual interest, less franchise income, and may require the return of unsold items received.
The offering documents must be submitted to the Department of Law for approval at least 10 business days before the offer is delivered, and the offer must recite §691's provisions. Special adjustments may apply to substantial property investments.
Statutory rescission differs from contractual termination and does not occur automatically.
Arbitration, Governing Law, and Forum Selection
Franchise agreements may require arbitration, select governing law, or designate a particular forum.
An enforceable arbitration clause may require covered disputes to proceed before an arbitrator. Courts may still determine whether the clause applies.
GBL §687 prohibits provisions purporting to waive compliance with the Franchise Sales Act. This restriction does not automatically invalidate every arbitration or forum-selection clause.
Claims involving termination or statutory violations may require separate evaluation through franchise litigation.
Westchester County Supreme Court Procedures
Westchester County Supreme Court hears qualifying civil contract and statutory disputes. Its Commercial Division operates at 111 Dr. Martin Luther King Jr. Boulevard, White Plains, New York.
Under 22 NYCRR §202.70, qualifying Commercial Division cases generally must meet a $100,000 monetary threshold, subject to specified exceptions.
For equitable or declaratory claims, courts assess the value of the object of the action, including the benefit sought, right protected, or injury averted.
Meeting the threshold does not guarantee assignment. The case must also satisfy applicable subject-matter and procedural requirements.
Covered proceedings use the New York State Courts Electronic Filing system (NYSCEF), subject to exceptions. Contractual forum provisions may require proceedings outside Westchester.
5. Frequently Asked Questions
Can a Franchisee Rely on Oral Earnings Promises?
Oral earnings promises are not automatically enforceable. Under 16 CFR §436.9(c), financial performance representations generally require a reasonable basis, written substantiation, and disclosure in Item 19 of the FDD.
Misleading oral statements may also violate New York General Business Law §687. Written disclosures, sales communications, and contractual disclaimers can affect a claim, but disclaimers do not automatically eliminate liability for statutory violations.
Does Selling a Franchise Release the Original Owner From Liability?
No. Franchisor approval of a franchise transfer does not automatically release the seller from existing debts, contractual obligations, or personal guarantees.
A release depends on the applicable agreements and whether the relevant parties have agreed to discharge the obligations. Without an effective release, the former owner may remain liable for obligations covered by the original contract or guarantee.
20 Oct, 2026
