Why does Deka Lash require an escrow account for initial franchise fees?
Deka_Lash Franchise · 2024 FDDAnswer from 2024 FDD Document
Due to our financial condition, the Virginia State Corporation Commission's Division of Securities and Retail Franchising requires us to establish an escrow account for all initial franchise fees that we charge. You shall make your check for franchise fees or other payments to the depository (Truist Bank) and send the check to us. Within two business days of our receipt of the check, we will deposit the check into an escrow account that we have established with Truist.Bank.
When we complete all of our pre-opening obligations to you (listed in Item 11 of this Disclosure Document), we will request that you affirm, in writing, that we have completed those obligations and that you assent to release of the funds held in escrow. After receipt of authorization from the Commission, the depository shall release the funds held in escrow by the depository to us to be applied to your account with us.
Source: Item 23 — RECEIPT (FDD pages 63–234)
What This Means (2024 FDD)
According to Deka Lash's 2024 Franchise Disclosure Document, the requirement to establish an escrow account for initial franchise fees is due to the franchisor's financial condition, as mandated by the Virginia State Corporation Commission's Division of Securities and Retail Franchising. This requirement applies specifically in Virginia.
The FDD specifies that franchisees in Virginia must make their payments for franchise fees to a depository, Truist Bank, and send the check to Deka Lash. Deka Lash is then obligated to deposit the check into an escrow account with Truist Bank within two business days of receipt.
These funds are held in escrow until Deka Lash has fulfilled all pre-opening obligations to the franchisee, as detailed in Item 11 of the FDD. Once these obligations are met, Deka Lash will request written affirmation from the franchisee that these obligations have been completed and that the franchisee consents to the release of the escrowed funds. Following authorization from the Virginia State Corporation Commission, the funds are released from escrow to Deka Lash and applied to the franchisee's account.