Economic trends and regulatory requirements mean brands should approach FDD renewal season with added awareness. Franchise attorneys note this means putting a bigger spotlight on disclosed costs, revenue and more.
The renewal of a brand’s franchise disclosure document may seem routine as an annual process.
Closer examination by state agencies and shifting costs because of the economy, however, mean franchisors need to pay even more attention in 2026. Attorneys who specialize in franchising said this means thorough reviews of key items in the FDD.
Eleanor Vaida Gerhards is a partner at Fox Rothschild.
“It’s important to make sure your process is started early and that you’re involving all of the thought leaders and decision makers in every department on the updates,” said Eleanor Vaida Gerhards, an attorney at Fox Rothschild. “This year in particular, there should be a focus on continuing to eliminate disclaimers on ambiguous information.”
For Item 7, which covers investment information, Gerhards said it’s not enough to use simplified language, such as "market fluctuations due to tariffs may increase costs." To have a detailed outlook on costs, fellow Fox Rothschild attorney Dharvi Goyal said a proper fee audit should be done.
“Talk with your stakeholders, suppliers, manufacturers and marketing team,” Goyal said. “Get the real cost estimates and timelines, making sure that it’s reflected in both the operation manuals and FDDs. The FDD is the starting point, but the franchise system runs through those manuals. If there’s an update happening in those manuals, they should be reflected in the FDD. It’s a great way to avoid getting trapped in regulatory actions.”
Amy Cheng, a partner at Cheng Cohen, also said she’s been speaking with her clients about Item 7 must-haves.
“I’ve been encouraging them to look carefully at the investments,” Cheng said. “Particularly if you have franchises with brands buying products from different countries, and meanwhile, there are tariffs that have been changing and may continue to in 2026. So, we’re making sure our clients are looking carefully at those numbers so they’ve considered all of the available information.”
Another area worthy of attention is Item 19, as Cheng said she supports efforts by franchisors in recent years adding more details to one of the most critical sections.
“If you want to be able to provide that information, you need to plan ahead in collecting the financial data and statements from franchisees,” Cheng said. “I’ve been asking my clients if they’re giving their franchisees a heads up, and making sure their owners have consistent accounts, so if they’re showing you the cost of labor, they’re including all of the variables. Getting that information before the year’s end or right after the new year is very important.”
The path for new concepts
The process for determining what to include in the Item 19 can become trickier for brands still in the early growth stage. Gerhards said this is true both for concepts starting from scratch and brands established in non-registration states looking to open in a registration state.
“On the Item 19, once a startup moves into those states, they’re much more scrutinized,” Gerhards said. “What we see a lot are company-owned outlets that are not representative of the franchises being sold. So, you have to have a reasonable basis for including figures in an Item 19.”
For example, Gerhards said if a brand has five-company-owned outlets, the brand has to consider variables such as larger or smaller footprints for franchise units, or operations that won’t apply to franchisees.
“If they’re not doing the same things that a franchisee is doing, they need to determine whether or not those details are reasonable to include,” Gerhards said. “Oftentimes, we have to dig into that with the client, to make sure that we’re just including revenue figures and expenses, and maybe leave one out if it’s generating twice as much revenue that a franchisee would see.”
For brands with fewer than 50 locations, Gerhards said franchisors should make a conscious push to include as many points of data as they can, even if it’s difficult.
Amy Cheng is a partner at Cheng Cohen.
“If they have 25 franchisees, they might be able to gather data from 11 of them and leave out the ones that haven’t been open for two years because they think a two-year ramp-up is needed,” Gerhards said. “Well, state examiners have a different view on that. Their view is 12 months or less, so if you leave those out, the state is going to comment on them.”
Universally, Cheng said brands should also keep track of any potential operation changes that can impact what revenues will be for owners.
“It’s not a science, it’s subjective,” Cheng said. “But if the concept is 5,000 square feet, and have now been adjusted to 2,000 square feet, is that going to make a difference to the revenue? It may or may not. It could be that 95 percent of the business is carry-out, and you don’t need that square footage. So, it’s important to walk through that with your counsel.”
For fitness brands, Gerhard said there’s been more attention to information related to retention and attrition of memberships. If that information is readily available, Gerhard recommends franchisors disclose it, and if not, consider it for next year’s renewal.
Attention to financing
Another common theme for this year’s renewal season is for franchisors to make sure the brand’s auditor or certified public accountant is licensed and peer reviewed.
“It’s become an extremely large sticking point over the last 12 months,” Gerhards said. “A couple years ago, we started seeing California examiners say to franchisors that their CPA isn’t licensed, and we have seen the same comment in New York now for the CPA’s peer review. We had a new registration in Maryland, too, where the state asked to see the most recent peer review for the system’s accountant.”
From Cheng’s perspective, regulatory scrutiny extends to whether financial assurance is required, too.
Attorney Dharvi Goyal of Fox Rothschild.
“Most of the registration states have been looking very carefully at the financial statements of the franchisor and making sure that their financial condition does not require financial assurance in order for them to make the registration effective,” Cheng said. “I would tell new franchisors, to the extent that you do have a financial assurance that a state has required, think about going forward, what does your condition need to look like for the state to waive the assurance.”
For most well-established brands, protocols are often in place to go over the aforementioned items with updates. However, Goyal said Fox Rothschild will still send out questionnaires to gather routine information that may need to be applied in updates.
“I think what has worked for us is adding those prompts,” Goyal said. “In the FDD, if they previously disclosed information about suppliers, rebates and discounts, we add questions to see if those are still accurate and valid, or if the suppliers have changed. The FDD should be as reflective of the operations as possible. When more people are involved from sales and marketing, and can give us observations of the last year, that really helps us.”
