Why is Deka Lash required to establish 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 Virginia State Corporation Commission's Division of Securities and Retail Franchising requires Deka Lash to establish an escrow account for all initial franchise fees they charge due to their financial condition. This requirement is specifically outlined in the Virginia Addendum to the Franchise Agreement.
As a prospective franchisee in Virginia, you are required to make your check for franchise fees or other payments payable to Truist Bank (the depository) and send the check to Deka Lash. Deka Lash is then obligated to deposit the check into the escrow account within two business days of receipt. These funds are held in escrow until Deka Lash completes all pre-opening obligations to the franchisee, as detailed in Item 11 of the FDD.
Once Deka Lash fulfills these obligations, they will request written affirmation from the franchisee that these obligations have been met, and that the franchisee consents to the release of the escrowed funds. Upon receiving authorization from the Virginia State Corporation Commission, Truist Bank will release the funds to Deka Lash, which will then be applied to the franchisee's account. This process ensures that the franchisee's initial investment is protected until Deka Lash has met its initial obligations, providing a level of financial security during the startup phase of the franchise.