Does Closet Storage Concepts consider royalty payments received as trust funds?
Closet_Storage_Concepts Franchise · 2025 FDDAnswer from 2025 FDD Document
Royalties received by Franchisor pursuant to this Section shall not be deemed trust funds nor shall Franchisor be required to segregate such funds in any way, but they shall be deemed general funds of Franchisor for all purposes.
- 3.3.3 Manner of Payment.
Franchisee shall participate in Franchisor's electronic funds transfer program under which Franchisor automatically deducts the weekly royalty and other payments owed to Franchisor under this Agreement from Franchisee's bank account.
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2025 FDD)
According to Closet Storage Concepts' 2025 Franchise Disclosure Document, royalty payments received by Closet Storage Concepts are not considered trust funds. The agreement specifies that these royalties are treated as general funds of the company. This means that Closet Storage Concepts is not required to segregate or hold these funds in a separate account, and can use them for any business purpose.
For a prospective franchisee, this is a standard practice. It means that once the royalty payments are made, Closet Storage Concepts has full control over those funds. The franchisee does not retain any claim or control over how Closet Storage Concepts uses the royalty fees.
This arrangement is typical in franchising, as franchisors generally use royalty fees to cover their operational expenses, support the franchise system, and generate profits. The FDD also states that Closet Storage Concepts participates in an electronic funds transfer program where the weekly royalty and other payments are automatically deducted from the franchisee's bank account.