If Closet Storage Concepts terminates the NAP, what options does it have for spending the funds?
Closet_Storage_Concepts Franchise · 2025 FDDAnswer from 2025 FDD Document
Although we anticipate that all NAP contributions will be spent in the fiscal year in which they are received, any remaining amounts will be carried over for use during the next fiscal year. The NAP may spend more or less than the total NAP annual contributions in a given fiscal year and may borrow funds to cover deficits. If we terminate the NAP, we may choose to spend the funds in accordance with our then-current marketing policies or distribute funds to franchisees on a pro-rata basis. There is no requirement that the NAP be audited. Upon your written request, we will provide you with un-audited fiscal year-end accountings of NAP expenditures. (Section 3.5 of the Franchise Agreement). We do not owe you any fiduciary obligation for administering the NAP. We may incorporate the NAP or operate it through a separate entity if we deem appropriate. We may maintain contributions to the NAP in a separate bank account or hold them in our general account and account for them separately.
Source: Item 11 — FRANCHISOR'S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS AND TRAINING (FDD pages 27–38)
What This Means (2025 FDD)
According to Closet Storage Concepts' 2025 Franchise Disclosure Document, if the National Advertising Program (NAP) is terminated, Closet Storage Concepts has the option to either spend the remaining funds in accordance with its then-current marketing policies or distribute the funds to franchisees on a pro-rata basis. This provides Closet Storage Concepts with flexibility in how to manage the remaining advertising funds should the NAP be discontinued.
For a prospective franchisee, this means that the contributions made to the NAP could potentially be returned if the program ends, although this is not guaranteed. The funds could instead be used according to Closet Storage Concepts' marketing policies at that time, which may or may not directly benefit individual franchisees. It is important to note that Closet Storage Concepts does not have a fiduciary obligation in administering the NAP, which is a common practice in franchising, giving them more discretion in how the funds are managed and spent.
It is also worth noting that the FDD states there is no requirement for the NAP to be audited. However, Closet Storage Concepts will provide unaudited fiscal year-end accountings of NAP expenditures upon a franchisee's written request. This provides a degree of transparency, allowing franchisees to see how the NAP funds are being spent, even though the information is not verified by an independent audit.