When does Carvel consider the Initial Franchise Fee to be fully earned?

According to Carvel's 2025 Franchise Disclosure Document, the initial franchise fee is considered fully earned and nonrefundable when Carvel signs the Franchise Agreement. The franchisee pays the initial franchise fee when they sign the agreement, but Carvel only considers it earned after they also sign the agreement. This means that Carvel has no obligation to refund any portion of the initial franchise fee, even if the agreement is terminated before the franchised business opens.

This policy is fairly standard in the franchise industry, as the initial fee compensates the franchisor for the time and resources expended in evaluating the franchisee, negotiating the agreement, and providing initial training and support. The nonrefundable nature of the fee underscores the importance of thorough due diligence before signing the agreement. Prospective Carvel franchisees should carefully review the FDD, consult with existing franchisees, and seek professional advice before committing to the franchise.

It is important to note that in Maryland, all initial fees and payments owed by franchisees are deferred until Carvel completes its pre-opening obligations under the Franchise Agreement. This is due to a financial assurance required by the Maryland Securities Commissioner based on Carvel's financial condition. This deferral provides additional protection to franchisees in Maryland, ensuring that Carvel fulfills its initial obligations before receiving the franchise fee.

For prospective Carvel franchisees, this means understanding the specific conditions under which the initial franchise fee becomes nonrefundable. Outside of Maryland, the fee is earned upon Carvel signing the agreement. In Maryland, the fee is deferred until pre-opening obligations are met. This distinction is crucial for financial planning and risk assessment before entering into a franchise agreement with Carvel.