For a Closet Storage Concepts franchise, are royalties based on trust funds?

According to Closet Storage Concepts' 2025 Franchise Disclosure Document, royalty fees paid by franchisees are not considered trust funds. The FDD specifies that the franchisor is not required to segregate these funds in any way and that they are considered general funds of the franchisor for all purposes. This means that Closet Storage Concepts can use royalty payments for any business purpose and is not legally obligated to hold them separately or use them for the direct benefit of franchisees.

Closet Storage Concepts franchisees are required to participate in an electronic funds transfer program, where the franchisor automatically deducts weekly royalty payments and other owed amounts from the franchisee's bank account. Franchisees must provide the necessary banking documents before opening their business and must notify Closet Storage Concepts of any changes to their banking relationship. The franchisor retains the right to require payments in any form or manner they prescribe.

The standard royalty fee is 5% of all weekly Gross Revenues of the Franchised Business, subject to a minimum of $125.00 per week. Gross Revenues include all revenue derived from the operation of the Closet & Storage Concepts business, including sales of products and services, and installation charges, but excluding sales taxes, use taxes, Gross Revenue taxes and other similar taxes collected from customers, and less any bona fide refunds, rebates, and discounts. If a franchisee operates multiple locations within a single territory, the Gross Revenues of all locations are combined to determine the correct royalty fee.

This arrangement is typical in franchising, where royalty payments provide the franchisor with ongoing revenue to support the franchise system. The fact that these funds are not held in trust gives Closet Storage Concepts greater flexibility in managing its finances, but it also means that franchisees do not have a direct claim on these funds.