Why does the California Rider to the MUD Agreement for Bambu require a deferral of initial fees?
Bambu Franchise · 2025 FDDAnswer from 2025 FDD Document
- The following shall be added at the end of Section 2.1:
The Department has determined that we, the franchisor, have not demonstrated we are adequately capitalized and/or that we must rely on franchise fees to fund our operations. The Commissioner has imposed a fee deferral condition, which requires that we defer the collection of all initial fees from California franchisees until we have completed all of our pre-opening obligations and you are open for business. For California franchisees who sign a MUD Agreement, the payment of the development and initial fees attributable to a specific unit in your development schedule is deferred until that unit is open
Source: Item 23 — Receipts (FDD pages 52–209)
What This Means (2025 FDD)
According to Bambu's 2025 Franchise Disclosure Document, the California Rider to the MUD Agreement mandates a deferral of initial fees due to the Department's determination that Bambu has not demonstrated adequate capitalization and/or relies on franchise fees to fund its operations. As a result, the Commissioner has imposed a fee deferral condition. This condition requires Bambu to postpone collecting initial fees from California franchisees until all pre-opening obligations are fulfilled and the franchisee's unit is open for business. This deferral applies to both development and initial fees associated with specific units within the franchisee's development schedule.
For prospective Bambu franchisees in California, this deferral offers a significant financial benefit. It alleviates the upfront financial burden, allowing franchisees to conserve capital until the business is operational and generating revenue. This arrangement reduces the risk for franchisees, as they are not required to pay fees until Bambu has met its pre-opening obligations. This condition provides a level of assurance that Bambu is committed to supporting the franchisee through the initial setup phase.
This requirement is specific to California due to the regulatory oversight of the Department and the Commissioner's assessment of Bambu's financial standing. Other states may have different requirements based on their own evaluations. For instance, the Maryland Securities Commissioner also requires a financial assurance based on Bambu's financial condition, leading to a similar deferral of fees in that state. Similarly, the Illinois Attorney General's Office imposed a deferral requirement due to Bambu's financial condition.
It is important for potential franchisees to understand that while this deferral benefits them initially, it also reflects a regulatory concern about Bambu's financial capitalization. Prospective franchisees should conduct thorough due diligence to assess the long-term financial stability of Bambu and its ability to support franchisees throughout the term of the agreement. This includes reviewing Bambu's financial statements and seeking advice from financial and legal professionals.