Many franchisors in the U.S. include a series of acknowledgments within the franchise agreement and/or a franchisee questionnaire that can later serve as a disclaimer of liability in disputes related to alleged fraud or misrepresentations during the offer and sale of a franchise. 

In order to set standards for the use of questionnaires and acknowledgments in U.S. franchise offerings, on September 18, 2022, the North American Securities Administrators Association, Inc. (“NASAA”) released a Statement of Policy Regarding the Use of Franchise Questionnaires and Acknowledgments (“Statement of Policy”). 

The Statement of Policy, which becomes effective on January 1, 2023, includes the following guidance for questionnaires and acknowledgments related to franchises that are offered or sold in states with anti-waiver or anti-fraud provisions (generally franchise registration states):

• If a franchisor requires prospective franchisees to sign a questionnaire or acknowledgment, the proposed form must be referenced in Item 22 of the Franchise Disclosure Document (“FDD”) and attached as an exhibit. If a franchisor requires the franchisee to verbally respond to questions and acknowledgments on video or other recording, a written script of the questions and acknowledgments must be attached to and included as part of the Item 22.
• The franchisor cannot require a prospective franchisee to make any statement in a questionnaire or acknowledgment that is subjective, unreasonable, causes the franchisee to surrender or believe that they have surrendered rights under federal or state law, or effectively shifts the franchisor’s disclosure duties to the franchisee.
• 11 specific representations are prohibited from the questionnaires or acknowledgments.
• The franchisor must include in the FDD and franchise agreement (or applicable addenda) a provision stating: “No statement, questionnaire, or acknowledgment signed or agreed to by a franchisee in connection with the commencement of the franchise relationship shall have the effect of (i) waiving any claims under any applicable state franchise law, including fraud in the inducement, or (ii) disclaiming reliance on any statement made by any franchisor, franchise seller, or other person acting on behalf of the franchisor. This provision supersedes any other term of any document executed in connection with the franchise.”

Although NASAA has no direct authority over franchising in the U.S., NASAA’s recommendations and policies have traditionally been given significant weight by states that regulate franchises. Therefore, franchisor’s should anticipate that most state regulators will follow the Statement of Policy starting in 2023.

If you have questions about the applicability of the Statement of Policy to your franchise sales process or require assistance with revising your franchise agreement and FDD to comply with the Statement of Policy, please contact us.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws discussed herein apply to the reader's specific circumstances.