For a Belocal franchise in California, who bears the costs of arbitration initially?
Belocal Franchise · 2025 FDDAnswer from 2025 FDD Document
- e. The franchise agreement requires binding arbitration. The arbitration will occur in the city in which Franchisor maintains its principal business office at the time of the arbitration with the costs being borne by initially be paid equally by the two sides to the arbitration. The arbitrator must award to the prevailing party the reasonable costs and fees, including attorneys' fees, incurred in the arbitration. Prospective franchisees are encouraged to consult private legal counsel to determine the applicability of California and federal laws (such as Business and Professions Code section 20040.5, Code of Civil Procedure section 1281, and the Federal Arbitration Act) to any provisions of a franchise agreement restricting venue to a forum outside the State of California.
Source: Item 22 — CONTRACTS (FDD page 71)
What This Means (2025 FDD)
According to Belocal's 2025 Franchise Disclosure Document, for a franchise in California, the costs and expenses of arbitration paid to the American Arbitration Association (AAA) and to the arbitrator will initially be paid equally by both parties involved in the arbitration, meaning the franchisee and Belocal will split these costs. However, all other arbitration-related expenses, such as attorney's fees and travel expenses, are to be paid initially by the party that incurs them.
Despite this initial split, the arbitrator has the authority to award the reasonable costs and fees, including attorney's fees, to the party that prevails in the arbitration. This means that while a franchisee must be prepared to pay half of the initial arbitration costs, they have the potential to recover these costs if they win the arbitration case.
It is important to note that this allocation of costs is subject to the arbitrator's final decision, which can shift the burden to the losing party. Prospective Belocal franchisees should carefully consider the potential costs of arbitration and the likelihood of success before entering into a dispute.