Under what conditions are closings considered Exempted Transactions for Engel & Volkers franchisees?
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, closings can be considered "Exempted Transactions" under specific conditions related to the payment of royalties. Specifically, no royalty fees are due on closings that occurred before the Payment Start Date, which is defined as the earlier of the franchisee's use of the Engel & Volkers system or trademarks, or the Opening Date.
Additionally, closings of properties that were "under contract for purchase" before the Payment Start Date also qualify as Exempted Transactions. The FDD clarifies that "under contract for purchase" means there is a fully executed sale or escrow agreement for the property. However, to claim this exemption, the franchisee must provide Engel & Volkers with documentation of these Exempted Transactions no later than two business days before the Payment Start Date.
Failure to provide this documentation in a timely manner will result in the franchisee being required to pay royalties on the gross revenues received from those transactions. This condition underscores the importance of franchisees maintaining accurate records and adhering to the franchisor's reporting requirements to avoid unnecessary royalty payments. This is a fairly standard practice in franchising, where franchisors rely on timely and accurate reporting to calculate royalties.