Is Closet Storage Concepts required to segregate royalty fees received from franchisees?
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.
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2025 FDD)
According to Closet Storage Concepts' 2025 Franchise Disclosure Document, Closet Storage Concepts is not required to segregate royalty fees. The FDD states that royalties received by Closet Storage Concepts are not considered trust funds, and Closet Storage Concepts is not required to segregate these funds in any way. Instead, the royalties are treated as general funds of Closet Storage Concepts for all purposes.
This means that Closet Storage Concepts can use royalty payments for any business purpose, such as covering operational expenses, investing in growth initiatives, or paying salaries. This is a common practice in franchising, as it allows the franchisor flexibility in managing its finances.
For a prospective Closet Storage Concepts franchisee, this clause indicates that royalty payments become the property of Closet Storage Concepts immediately upon receipt and are not held in escrow or designated for specific uses that would directly benefit the franchisee. Franchisees should be aware that they cannot claim any special rights or control over how Closet Storage Concepts uses the royalty fees they pay.