What is the deadline for an Engel & Volkers franchisee to provide documentation of Exempted Transactions to the franchisor?
Engel_Volkers Franchise · 2025 FDDAnswer from 2025 FDD Document
Royalties will be paid pursuant to Section 14.6. Franchisee will pay Franchisor Royalties for all closings occurring on or after the earlier of (i) Franchisee's use of the Engel & Völkers System or Trademarks or (ii) the Opening Date as set forth in Section 14.4 (the "Payment Start Date") including within six (6) months after termination, expiration, or transfer of the Agreement if the properties so closed were "under contract for purchase" (as defined below) at the time of termination, expiration or transfer of the Agreement. If the transfer is of ownership interest in Franchisee, the obligation to pay Royalty after the transfer shall be on the transferor(s), and Royalties shall be calculated on any income the transferor(s) earn(s) directly or indirectly from each listing that before the transfer were listings of Franchisee. Notwithstanding the foregoing, no Royalty will be due: (i) on closings that occurred before the Payment Start Date; and (ii) on closings of any properties that were "under contract for purchase" before the Payment Start Date (jointly "Exempted Transactions"), provided, that Franchisee provides Franchisor documentation of any Exempted Transactions no later than two (2) business days before the Payment Start Date. For the avoidance of doubt, as used in this Section 14 "under contract for purchase" means that there is a fully executed sale or escrow agreement for the property. Should Franchisee fail to provide or fail to provide in a timely fashion to Franchisor documentation for the Exempted Transactions, Franchisee will pay Franchisor Royalties on any Gross Revenues received from any such transactions.
Source: Item 22 — CONTRACTS (FDD page 88)
What This Means (2025 FDD)
According to Engel & Volkers' 2025 Franchise Disclosure Document, a franchisee must provide documentation of any Exempted Transactions to Engel & Volkers no later than two business days before the Payment Start Date. The Payment Start Date is defined as the earlier of (i) the franchisee's use of the Engel & Volkers System or Trademarks, or (ii) the Opening Date. Exempted Transactions are closings of properties that were "under contract for purchase" before the Payment Start Date. The FDD clarifies that "under contract for purchase" means a fully executed sale or escrow agreement for the property.
This requirement is important because if the Engel & Volkers franchisee fails to provide this documentation on time, they will be required to pay royalties on the gross revenues received from those transactions. This could significantly impact the franchisee's profitability, especially in the early stages of operation when managing costs is crucial. Therefore, it is essential for franchisees to maintain accurate records of all transactions and adhere to the documentation deadlines set by Engel & Volkers.
In the franchise industry, it is common for franchisors to require documentation and reporting from franchisees to ensure compliance with the franchise agreement and to calculate royalties accurately. The specific deadlines and requirements can vary, but the underlying principle is to maintain transparency and accountability in financial matters. Prospective Engel & Volkers franchisees should carefully review the franchise agreement and related documents to fully understand their obligations regarding royalty payments and documentation requirements.