When is the initial franchise fee for an Exit franchise fully earned by the Subfranchisor?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
Upon the execution of this Agreement, Franchisee shall pay Subfranchisor, by cashier's check or wire transfer, an initial fee in the amount of [insert franchise price] (hereinafter "Initial Fee"). The Initial Fee shall be fully earned by Subfranchisor upon the execution of this Agreement, and no portion of the Initial Fee shall be refundable. The grant of this franchise and the payment of the Initial Fee provide Franchisee no rights regarding such other licenses, franchises or additions to the Protected Territory. No rights or privileges under this Agreement shall exist until the Initial Fee is paid.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the initial franchise fee is fully earned by the Subfranchisor upon the execution of the franchise agreement. The specific amount of the initial fee is to be inserted in the franchise agreement. Once the agreement is executed, the fee is non-refundable.
This means that a prospective Exit franchisee must pay the full initial fee to the Subfranchisor when signing the agreement. The Subfranchisor is not obligated to refund any portion of this fee, regardless of whether the franchisee ever opens their Exit franchise location or if the agreement is terminated early. This is a standard practice in franchising, as the initial fee compensates the franchisor for the costs associated with granting the franchise, including training, support, and access to the Exit system.
It is important for potential Exit franchisees to carefully consider their financial situation and business plan before signing the franchise agreement and paying the initial fee, as they will not be able to recover this investment. Franchisees should conduct thorough due diligence, review the FDD carefully, and seek professional advice before making a final decision.